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Notes Receivable – Current Assets includes:
o Draft drawn endorsed
o Subscription
o Advances
o NR (collateral)
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Reconciliation of cash account
o compensating control
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Control procedure that best prevent direct labor from being charged to manufacturing
overhead
o Comparison of daily journal entries with factory labor summary
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Perpetual records are maintained and internal control procedures over inventory are deficient,
auditor would
o Want the client schedule the physical inventory count at year end
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Not common to conversion cycle?
o ANS: implementing a JIT order entry system
o Maintaining perpetual inventory records
o Accounting for fixed asset disposal and retirements
o Recording depreciation allocation
Solution:
Q1: INTEREST RATE ON THE NOTE – 13%
1.5M – 300k = 1.2M (TAE method)
[1.2M / 341,180] = 3.5172 PV factor of OA → Derived →
1+(1.13)−5
.13
Q2: PROFIT IS OVERSTATED BY 349,900
Q3: RE AS OF DEC 31 IS OVERSTATED BY: 217,973
Q4: WORKING CAPITAL IS OVERSTATED BY: 787,084
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VORAE () = vouching, overstatement, revenue, asset, existence
TULEC (→) = tracing, understatement, liabilities, expenses, completeness
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In performing test concerning the granting of stock options an auditor should
o Trace the authorization for the transaction to a vote of the BOD
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Most efficient procedure for the detection of unrecorded liabilities
o Compare cash disbursement in the subsequent period with the AP trial balance at
year-end
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Most efficient audit procedure for testing accrued interest earned on bond investment
o Recomputing interest earned
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In testing the valuation assertion for investment, the auditor should do all of the following,
except:
o Confirm securities held in safekeeping of the client premises
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The best source of audit evidence to verify the property of costs charged to real property
recordings for improvements to properly
o Original invoices supporting entries in the accounting records
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The expert should have an understanding of the auditor corroborative use of the expert
findings
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IF unable to attend the physical inventory count in the date planned due to unforeseen
circumstances, the auditor should
o Take or observe some physical count
Which of the following most likely would give the most assurance concerning valuation
assertion of AR?
o Assessing the allowances for uncollectible accounts for reasonableness
The use of negative form of AR confirmation is most likely justified:
o A small number of accounts may be in dispute and the AR balance arises from
sales to many customers with small balances
From what source document would a company prepare a bank deposit?
o A list of checks received and remittance advices
Which source document would likely to be sent to a customer?
o Sales order
Which of the following control activities could prevent or detect errors or fraud arising
from shipment made to unauthorized parties?
o Prepare and periodically update lists of authorized customers
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RESA FPB 2022
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Audit – positive assurance
Risk assessment procedures
o Observation
o Inquiry – seek information for management
o Analytical Review – comparing different account balances
o Recalculation – ensure correct amount in the F.S
o Inspection – inspect document
Test of Controls
o Determine whether internal controls effectively prevent or discover material
misstatement
Agreed-upon Procedures
o For internal purposes; parties who agreed
▪ Inquiry and analysis
▪ Recomputation
▪ Observation
Management discussion and analysis
o Section within a company’s annual report / quarterly filing where executives
analyzes the company’s performance
o (e.g. compliance, risks, future plans)
Modified Opinion
o Basis for opinion paragraph
o Opinion paragraph
▪ Qualified – except for; department from PFRS
▪ Adverse – because of
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Disclaimer – due to → amend