AUDITING

1. Which of the following is incorrect regarding independence?

a) Independence consists of independence of mind and independence in appearance.
b) Independence of mind is the state of mind that permits the provision of an opinion
without being affected by influences that compromises professional judgment, allowing
an individual to act with integrity, and exercise objectivity and professional
skepticism.
c) Independence in appearance is the avoidance of facts and circumstances that are so
significant that a reasonable and informed third party would be likely to conclude that
a firms, or an audit or assurance team members, integrity, objectivity or professional
skepticism has been compromised.
d) Independence is a combination of impartiality, intellectual honesty and a freedom from
conflicts of interest.
2. S1: Integrity is attribute that most clearly differentiates c CPA who audits management’s
financial statements as contrasted to management.
S2: Not all engagements require integrity

a) True, True
b) True, False
c) False, True
d) False, False
3. An auditors purpose I n reviewing the renewal of a note payable shortly after the reporting
date most likely is to obtain evidence concerning managements assertions about:
a) Existence
b) Completeness
c) Presentation and Disclosure
d) Valuation or Allocation
4. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening
balances, the auditor most likely will issue:
a) Qualified Opinion
b) Qualified or Adverse
c) Unqualified with emphasis of a matter
d) Qualified or disclaimer
5. Tests to determine whether the accounting transactions have been properly authorized,
correctly recorded and summarized in the journals, and correctly posted to subsidiary
ledgers and the general ledger are:
a) Tests of controls
b) Substantive test of transactions
c) Substantive tests of balances
d) Analytical Procedures
6. Which of the following primary assertions is satisfied when an auditor ensures that there are
no unrecorded assets, liabilities, transactions or events or undisclosed items in the clients
financial records?
a) Valuation
b) Existence
c) Completeness
d) Rights and Obligations
7. Which of the following activities is an analytical procedure an auditor would perform in the
final overall review stage of an audit to ensure that the financial statements are free from
material misstatement?
a) Reading the minutes of the BODs meetings for the year under audit
b) Obtaining a letter concerning potential liabilities from the clients attorney
c) Comparing the current years financial statement with those of the prior year
d) Ensuring that a representation letter signed by ,management is in the file
8. A dual dated report contains the dates of a subsequent event and the date the:
a) Auditor completed work in the clients office
b) Financial statements were prepared
c) Subsequent event was resolved
d) Audit report was delivered
9. The auditors formal review of subsequent events normally should be extended through the
date of the:
a) Auditors Report
b) Next formal interim financial statement
c) Delivery of the audit report to the client
d) Mailing of the financial statements to the stockholders
10.Which of the following proposed actions may mostly mitigate the going concern problem of an
entity?
a) Rescheduling of loan payments
b) More vigorous business expansion
c) Acquiring asset replacement using short-term loans
d) Increasing the amount of cash dividends to be paid
11.In going concern, If a company fails to disclose necessary facts as a suggested by the auditor,
the auditor should issue a/an:
a) Adverse Opinion
b) Qualified Opinion
c) Unqualified opinion with MURTGC
d) Disclaimer of Opinion
12.A purpose of a management representation letter is to reduce:
a) Audit risk to an aggregate level of misstatement that could be considered material
b) An auditors responsibility to detect material misstatement only to the extent that the
letter is relied on
c) The possibility of misunderstanding concerning managements responsibility for the
financial statements
d) The scope of an auditors procedures concerning related party transactions and
subsequent events
13.The auditor should review information by those charged with governance and management
identifying:
I. Names of all known related parties
II. Related party transactions
a) I Only
b) Both I and II
c) II Only
d) Neither I and II
14.Other comprehensive financial reporting frameworks may include the following, except:
a) The Philippine Financial Reporting Framework
b) That used by an entity to prepare its income tax return
c) The cash receipts and disbursements basis of accounting
d) The financial reporting provisions of a government regulatory agency
15.Which of the following is not included in the option section of the Auditors Report?
a) Identification of the financial statements audited, including the date of and period
covered by the financial statements
b) A statement that the financial statements have been audited
c) References to the notes, including the summary of significant accounting principles
d) A statement that the responsibility of the auditor is to express an opinion on the
financial statements based on the audit
16.Tatsuki is the external auditor for Heavenly Host Enterprises. The company provided him
with the statement of cash flows, statement of financial position and statement of
comprehensive income. The company did not provide him the statement of retained earnings
and statement of changes in equity. If the omission proves to be somewhat close to the level
of materiality, what should be Tatsukis, opinion?
a) Qualified
b) Adverse
c) Unqualified
d) Disclaimer of opinion
17.Key audit matters are required to be included in the new audit report for
a) Listed entities only
b) Listed entities and SMEs
c) Listed and non-listed entities
d) SME only
18.An audit report contains the following paragraph: “Since the company did not take physical
inventories and we were not able to apply auditing procedures to satisfy ourselves as to
inventory quantities and the cost of property and equipment, the scope of our work was not
sufficient to enable us to express, and we do not express, an opinion on these financial
statements.” This paragraph illustrates a (an)
a) Disclaimer of opinion due to uncertainty
b) Disclaimer of opinion due to scope restrictions
c) Adverse audit opinion
d) Audit opinion qualified for material scope restrictions
19. Evaluate the following statements:
I. Matters relevant to users understanding and are disclosed in the financial statement
II. Matters relevant to users understanding and are not disclosed in the financial
statement
a) Emphasis of a Matter (EOAM), Other Matter (OM)
b) OM, EOAM
c) EOAM, EOAM
d) OM, OM
20. They are not presented as complete financial statements capable of standing alone, but are
an integral part of the current period financial statements intended to be read only in
relationship to the current period figures:
a) Corresponding figures
b) Prior period figures
c) Comparative Figures
d) Comparatives
21.Auditors responsibility when a material inconsistency is defines
a) Determine whether the audited financial statements or the other information needs to
be corrected
b) Qualify the opinion or express an adverse opinion
c) Ask management to appropriately amend the financial statement
d) Seek legal advice
22.CPA firm has performed most of the audit of the consolidated company’s financial statements
and qualities as the principal auditor, CPA Firm B did the remainder of the work. Firm A
wishes to assume full responsibility for Firm B’s work. Which of the following is CORRECT?
a) In such circumstances, when appropriate requirements have been met, Firm A should
issue an unqualified opinion on the financial statement.
b) In such, circumstances when appropriate requirements have been met, Firm A should
issue an unqualified opinion on the financial statements but should make appropriate
reference to the Firm B in the audit report.
c) Such assumption of responsibility violates the professions standards
d) CPA Firm A should normally qualify its audit report on the basis of the scope
limitation involved when another CPA Firm is involved.
23.If an auditor is asked to provide an opinion relation to information accompanying the
financial statements in a document, the opinion will ordinarily be upon whether the
information is fairly stated in:
a) Accordance with PSAs
b) Conformity with PFRSs
c) All material respects in relation to the basic financial statement taken as a whole
d) Accordance with attestation standards expressing a conclusion about managements
assertions
24.Which of the following is an appropriate title on Emphasis of a Matter paragraph to alert
users and restrict the distribution of a special report?
a) Basis of Accounting
b) Basis of Accounting and Restriction on Distribution and Use
c) Basis of Accounting and Special Purpose FS
d) Independent Auditors Special Purpose Report
25.Haris, CPA, has been asked to audit and report on the balance sheet of Fox Co. but not on
the statements of Income, Retained Earnings, or Cash Flows. Harris will have access to all
information underlying the basic financial statements. Under these circumstances, Harris
may:
a) Not accept the engagement because it would constitute a violation of the professions
ethical standards
b) Not accept the engagement because it would be tantamount to rendering a piecemeal
opinion
c) Accept the engagement because such engagements merely involve limited reporting
objectives
d) Accept the engagement but should disclaim an opinion because of an inability to apply
the procedures considered necessary
26.An auditor is reporting on summarized financial statements for an annual period that are
derived from the audited financial statements. The auditors opinion should indicate whether
the information in the summarized financial statements is fairly stated in all material
respects
a) In conformity with accounting principles generally accepted in the Philippines
b) In relation to the complete financial statements
c) In conformity with another comprehensive basis of accounting
d) In relation to supplementary filings under SEC
27.When the examination of prospective financial information is affected by conditions that
preclude application of one or more procedures considered necessary in the circumstances,
the auditor should:
a) Either withdraw from the engagement or disclaim the opinion
b) Either withdraw from the engagement or qualify the opinion
c) Withdraw from the engagement
d) Either withdraw from the engagement or adverse the opinion
28.When a CPA has concluded that action should be taken to prevent future reliance on his
report, he should:
a) Advise his client to make appropriate disclosure of the newly discovered facts and
their impact on the financial statements to persons who are known to be currently
relying or who are likely to rely on the financial statements and the related auditors
report.
b) Recall the financial statements and issue revised statements and include an
appropriate opinion
c) Advise the client and others not to rely on the financial statements and make
appropriate disclosure of the correction in the statements of a subsequent period
d) Recall the financial statements and issue a disclaimer of opinion which should
generally be followed by revised statements and a qualified opinion.
29.An auditor is considering whether the omission of a substantive procedure considered
necessary at the time of an audit may impair the auditor’s present ability to support the
previously expressed opinion. The auditor need to apply the omitted procedure if the:
a) Financial statements and auditors report were not distributed beyond management
and the board of directors
b) Auditors previously expressed opinion was qualified because of a departure from GAAP
c) Results of other procedures that were applied tend to compensate for the procedure
omitted
d) Omission is due to unreasonable delays by client personnel in providing data on a
timely basis
30.An auditor is determining the sample size for an inventory observation using mean-per-unit
estimation, which is a variables sampling plan. To calculate the required sample size, the
auditor usually determines the:

Variability in the Peso Risk of Incorrect

Amount of Inventory Items Acceptance
a) Yes Yes
b) No No
 c) No Yes
d) Yes No

31.Which of the following statement is correct concerning statistical sampling in tests of

controls?
a) Deviations from control procedures at a given rate usually result in misstatements at a
higher rate
b) As the population size doubles, the sample size should also double
c) The qualitative aspects of deviation are not considered by the auditor
d) There is an inverse relationship between the sample size and the tolerable rate

32.What controls are designed to ensure that an organizations computer based control
environment is stable and well managed?
a) General Controls
b) Detective Controls
c) Application Controls
d) Preventive Controls

33.Application Controls are

a) Manual or automated procedures that typically operate at a business process level and
apply to the processing of transactions by individual application
b) Policies and procedures that relate to many applications
c) Controls that maintain the integrity of information and security of data such as
controls over system software acquisition, change and maintenance
d) Controls that relate to many applications and support the effective functioning of
general controls
34. An auditor who is testing CIS controls in a payroll system would most likely use test data
that contained conditions such as:
a) Deductions not authorized by employees
b) Overtime not approved by supervisors
c) Time tickets with invalid job numbers
d) Payroll checks with unauthorized signatures
PROBLEM 1
Pepeng corporation reported the following investments in December 31, 2022 statement of Financial
Position:

ONDOY Corp. shares at Acquisition Cost P1,000,000

FERIA Corp. Shares 475,000
HARUROT 10%, bonds 15 years 1,100,000

Audit Notes:
A. PEPENg Corporation acquired 20,000 ONDOR shares on February 5, 2022 at P50 which
included a P2 per share brokers fee and commission. A P60,000 cash dividends was received
from ONDOY Corp. on March 20,2022. These dividends were declared on January 5 payable
to shareholders as of February 10. ONDOY shares were split for 2 for 1 on November 1. The
shares were selling at P30 per share on December 31.2022.
B. 50,000 FERIA Corporation shares were acquired on March 1, 2021 at P25 per share. The
company paid total brokers fee at P75, 000 on the acquisition. The company received a 10%
stock dividends on these shares on November 1, 2021. On M<arch 1, 2022 the company sold
30,000 FERIA Corporation shares at P30 per share which the company credited to the
investment account. Shares were selling in the market at P29 and P35 per share on
December 31, 2021 and December 31, 2022, respectively.
C. The 10%, 5-year HARUROT bonds having an original face value of P2, 000, 000 and paying
interest every December 31 were acquired in June 30, 2021 at a total acquisition price of P2,
100,000 which the company credited to the investment account. The bonds were quoted at
110 and 115 at the end of 2021 and 202 respectively.
 D. The investment were acquired with an intention of generating short term profits, however,
the company failed to consider remeasuring investments at the end of each year.

35.How much is the correct unrealized gain or loss to be reported in the 2021 income
statement?
a) 570,000
b) 470,000
c) 445,000
d) 370,000
36.How much is the correct unrealized gain or loss to be reported in the 2022 income
statement?
a) 400,000
b) 450,000
c) 500,000
d) 550,000
37.What is the total realized gain/loss from sales of investments to be reported in the 2021
income statement?
a) 30,000
b) 95,000
c) 125,000
d) 155,000
38.How much total investment at fair value through profit or loss should be reported in the
2021 statement of financial position?
a) 3, 695, 000
b) 3, 795, 000
c) 3, 595, 000
d) 3, 650, 000
39.How much total investment at fair value through profit or loss should be reported in the
2022 statement of financial position?
a) 3, 250, 000
b) 3, 025, 000
c) 3, 115, 000
d) 3, 225, 000
PROBLEM 2
40.Determine the correct balance of the Treasury Shares:
a) P160,000
b) P190,000
c) P210,000
d) P200,000
41.Determine the correct balance of the Ordinary Shares:
a) P2,490,000
b) P2,500,000
c) P2,460,000
d) P2,210,000
42. Determine the correct balance of the Share Premium- Issuance:
a) P3,486,000
b) P3,500,000
c) P3,620,000
d) P3,606,000
43. Determine the correct balance of the Share Premium- Treasury Shares:
a) P120,000
b) P 0
c) P240,000
d) P710,000
44. Determine the correct balance of Retained Earnings (before appropriation for treasury
shares):
 a) P1,732,000
b) P1,859,000
c) P1,597,000
d) P1,718,000

PROBLEM 3
45.Determine the correct balance of the Net Accounts Receivable:
a) P107,700
b) P112,500
c) P114,500
d) P113,000
46. Determine the correct net balance of Land, Buildings, and Equipment :
a) P378,800
b) P556,800
c) P376,800
d) P386,800
47.Determine the correct balance of Inventories:
a) P204,000
b) P198,000
c) P159,000
d) P195,000
48. Determine the correct balance of Current Assets:
a) P320,550
b) P330,550
c) P310,250
d) P312,450
49. Determine the correct balance of long-term debt:
a) P25,000
b) P51,200
c) P 0
d) P76,000
50. Determine the correct balance of Preference Shares:
a) P215,000
b) P90,000
c) P125,000
d) P68,800
51. Determine the correct balance of Paid-In-Capital in excess of par and stated value:
a) P68,600
b) P90,000
c) P337,100
d) P87,000
52. Determine the correct balance of Retained Earnings:
a) P180,000
b) P190,650
c) P180,650
d) P179,650
53. Determine the correct balance of Total Asset:
a) P703,250
b) P705,250
c) P710,250
d) P703,000
54. Determine the correct balance of Current Liabilities:
a) P144,250
b) P134,250
c) P138,375
d) P200,000
PROBLEM 4
55. What is the adjusted net income for the year ended December 31, 2020?
a) P133,000
b) P117,000
c) P121,000
d) P113,000
56. What is the adjusted net income for the year ended December 31, 2021?
a) P159,000
b) P187,000
c) P178,000
d) P179,000
57. What is the adjusted net income for the year ended December 31, 2022?
a) P129,600
b) P131,000
c) P104,400
d) P139,600
58.What adjusting entry should be made on December 31, 2022, to correct the error described
in item B?
a) Accounts Payable 15,000
Purchases 15,000
b) Purchases 15,000
Accounts Payable 15,000
c) Accounts Payable 15,000
Cash 15,000
d) No Adjusting Entry is necessary
59. The adjusting entry on December 31, 2021, to correct the error described in item E should
include a debit to:
a) Ordinary share capital of P10,000
b) Retained Earnings of P16,000
c) Share Premium of P3,000
d) Miscellaneous Expense of P3,000

PROBLEM 5
60.Determine the balance of cash collections from customers:
a) P1,905,000
b) P1,950,000
c) P1,940,000
d) P1,960,000
61. Determine the balance of cash paid for taxes:
a) P79,000
b) P90,000
c) P68,000
d) P101,000
62. Determine the balance of net cash provided by operating activities:
a) P134,000
b) P147,000
c) P142,000
d) P141,000
63. Determine the balance of net cash provided by investing activities:
a) (44,000)
 b) 19,000
c) (63,000)
d) (38,000)
64. Determine the balance of net cash provided by financing activities:
a) (45,000)
b) (50,000)
c) (27,000)
d) (93,000)

PROBLEM 6
65. The entry to write off ICTs accounts receivable from TP hit of P20,000 will:
a) Decrease total assets and net income for 2022
b) Increase total assets and decrease net income for 2022
c) Have no effect on total assets and net income for 2022
d) Have no effect on total assets and increase net income for 2022
66. ICTs estimated bad debts expense for 2022 based on net credit sales is:
a) P60,000
b) P12,000
c) P45,000
d) P56,250
67.The final entry to adjust the allowance for bad debts account is:
a) Bad Debt Expense 44,300
Allowance for Bad Debts 44,300
b) Bad Debt Expense 45,000
Allowance for Bad Debts 45,000
c) Bad Debt Expense 24,300
Allowance for Bad Debts 24,300
d) Allowance for Bad Debts 24,300
Bad Debt Expense 24,300
68. What is the net realizable value of ICTs accounts receivable on December 31, 2022?
a) P1,435,700
b) P1,435,000
c) P1,397,700
d) P1,377,700
69. Which of the following most likely would give the most assurance concerning the valuation
and allocation assertions of accounts receivable?
a) Vouching amounts in the subsidiary ledger to details on shipping documents
b) Comparing receivable turnover ratios with industry statistics for reasonableness
c) Inquiring about receivables pledged under loan agreements
d) Assessing the allowance for uncollectible amounts for reasonableness
PROBLEM 7
70. Determine the balance of Current Assets:
a) P4,019,000
b) P3,983,000
c) P4,071,000
d) P4,035,000
71. Determine the balance of Non-current Assets:
a) P8,814,000
b) P8,839,000
c) P8,891,000
d) P8,866,000
72. Determine the balance of Current Liabilities:
a) P3,883,000
b) P3,885,000
c) P3,921,000
d) P3,693,000
73.Determine the balance of Non-current Liabilities:
a) P3,913,000
b) P4,105,000
 c) P3,810,000
d) P3,915,000

PROBLEM 8
74.The total amortization of the intangible assets for the year 2022 is:
a) P680,000
b) P610,000
c) P280,000
d) P830,000
75.The carrying amount of the intangible assets as of December 31, 2022 is:
a) P8,850,000
b) P7,400,000
c) P9,070,000
d) P9,000,000
76. The carrying amount of the investment in bonds as of December 31, 2022 is:
a) P9,230,000
b) P9,291,000
c) P9,353,000
d) P10,000,000
77.The carrying amount of deferred tax asset as of December 31, 2022 is:
a) P342,500
b) P310,000
c) P237,500
d) P360,000
78. In testing the reasonableness of interest income, an auditor could most effectively use
analytical tests involving:
a) Documentary Support of specific entries in the account
b) The beginning balance in the investment account for fixed income securities
c) The average monthly balance in the investments account for fixed income securities
d) The ending balance in the investments accounts for fixed income securities
PROBLEM 9
79. What is the correct balance of the accounts payable account?
a) 272,500
b) 282,000
c) 290,000
d) 260,000
80.What is the correct balance of the warranties liability?
a) 308,000
b) 318,000
c) 323,000
d) 333,000
81.How much is the correct additional accruals to be included in the company’s’ total current
liabilities?
a) 124,067
b) 47,600
c) 23,600
d) 25,500
82. What is the balance of the lease liability to be presented as long-term liabilities?
a) 3,912,158
b) 3,823,326
c) 3,616,404
d) 3,520,251
83.How much is the carrying value of the bonds payable as of December 31, 2022?
a) 843,448
b) 840,606
c) 843,584
d) 840,817