ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 46  October 2023 CPALE  16 Sept 2023  11:45 AM – 02:45 PM
AUDITING
FINAL PRE-BOARD EXAMINATION
INSTRUCTIONS: Select the correct answer for each of the questions.
Mark only one
answer for each item by shading the box corresponding to the letter of your choice on
the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.
1. Sampling risk can lead to two types of erroneous conclusions. In the case of a
test of controls, that controls are more effective than they actually are, or in
the case of a test of details, that a material misstatement does not exist when
in fact it does. As such:
Statement I: This type of erroneous conclusion affects audit efficiency as it
would usually lead to additional work to establish that initial conclusions were
incorrect.
Statement II: The auditor is primarily concerned with this type of erroneous
conclusion because it affects audit effectiveness and is more likely to lead to
an inappropriate audit opinion.
a.
b.
Only statement I is true.
Only statement II is true.
c.
d.
Both statements are true.
Both statements are false.
2. With regard to the performance of audit sampling during the audit of a client,
which of the following statements is correct?
a. Professional judgment is not a valid justification in deciding whether to
use a statistical or nonstatistical sampling approach.
b. Sample size is a valid criterion in deciding between a statistical or
nonstatistical sampling approach.
c. The level of sampling risk that the auditor is willing to accept affects
the sample size.
d. The sampling unit must be stated in monetary terms.
3. Which
of the following applications of sampling to test controls is most
appropriate?
a. Testing a sample of customer orders for evidence of credit approval.
b. Testing a sample of controls to determine the segregation of duties
between inventory control and sales processing duties.
c. Testing a sample of accounts receivable confirmations.
d. Testing a sample of the budget center directors' allocation of annual
budget to sales units.
4. Which of the following conditions necessitates a larger sample size?
a.
b.
c.
d.
A
A
A
A
high level of detection risk
low frequency of misstatement
low level of tolerable misstatement
low assessed level of control risk
5. Which of the following statements regarding statistical sampling in auditing is
true?
a.
b.
c.
d.
Inasmuch as audits are test-based, generally accepted auditing standards
require the use of statistical sampling methods whenever the auditor
decides to examine only a part of the population.
Although statistical sampling may be applied to test controls, it is
required for substantive testing purposes.
Sampling methods are used by auditors in both testing of controls and
substantive testing.
Statistical sampling methods are more appropriate for testing controls
when the auditor elects to reprocess transactions than when controls are
tested by means of document examination.
6. For which of the following responses in a legal letter would an auditor most
likely qualify the audit opinion for a scope limitation?
a. The response is limited to only those items to which the attorney has
devoted substantial attention.
b. The attorney is unable to respond as to the outcome of the matter because
of inherent uncertainty.
c. The response specifically excludes information on a pending legal matter
because of publicity concerns.
d. The attorney is unable to provide a reasonable estimate of a probable
loss arising from a legal matter.
Page 1 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
7. In an audit of financial statements, each of the following factors may raise
substantial doubt about the client's ability to continue as a going concern for
a reasonable period of time, except
a. Internal work stoppages.
b. Negative financial trends.
c. Underinsured catastrophe coverage.
d. Plans to dispose of fully depreciated assets.
8. Which of the following is the principal reason for the requirement to obtain a
management representation letter from client management?
a. To reduce reliance on employee-completed internal control questionnaires
b. To reduce reliance on analytical procedures that have been performed
c. To replace assertions in the legal representation letter
d. To complement other auditing procedures that have been performed
9. Which of the following procedures would least likely help the auditor discover
a subsequent event at the conclusion of the audit?
a. Reviewing and analyzing the latest available interim financial statements
b. Reviewing the minutes of meetings with board of directors
c. Reviewing the audit working papers
d. Obtaining a legal letter from the client's attorney
10. An auditor is in the process of identifying any pending litigation claims against
the client that might require disclosure in the audited financial statements.
Which of the following steps should the auditor take first to acquire information
regarding litigation?
a. Request that management mail a letter of inquiry to the client's legal
counsel.
b. Inquire about and discuss any potential litigation with management.
c. Send a letter of inquiry to the client's legal counsel.
d. Examine contracts for potential violations.
11. Which of the following procedures would most likely help an auditor identify
events after the date of the financial statements that should be disclosed?
a. Review changes in the interest rate for cash accounts.
b. Follow up on accounts receivable confirmations that were not returned for
additional loss accruals.
c. Inquire about changes in capital shares that were issued or repurchased.
d. Evaluate depreciation schedules for additional depreciation expenses.
12. In planning an audit, an auditor established materiality at ₱40,000. The auditor
received an attorney's letter indicating that it was probable that each of the
three lawsuits would be settled for ₱30,000. Which of the following actions
should the auditor take?
a. Add a separate paragraph to the audit report disclosing the contingencies
and their amounts.
b. Ask the client to disclose the contingencies in the notes to the financial
statements.
c. Ask the client to record the liability for the three contingencies.
d. Add a paragraph to the auditor's opinion disclosing a scope limitation.
13. The opinion paragraph in an auditor's report should include a statement that:
a.
b.
c.
d.
Includes the word independent to clearly indicate that the report is from
an independent auditor.
Describes the auditor's responsibility for expressing an opinion on the
financial statements.
Identifies the applicable financial reporting framework and its origin.
Indicates that management is responsible for the fair presentation of the
financial statements.
14. Statement I: If financial statements prepared in accordance with the requirements
of a fair presentation framework do not achieve fair presentation, the auditor
shall discuss the matter with management and, depending on the requirements of
the applicable financial reporting framework and how the matter is resolved,
shall determine whether it is necessary to modify the opinion in the auditor’s
report.
Page 2 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
Statement II: When the financial statements are prepared in accordance with a
compliance framework, the auditor is not required to evaluate whether the
financial statements achieve fair presentation.
a.
b.
Only statement I is true.
Only statement II is true.
c.
d.
Both statements are true.
Both statements are false.
15. The
auditor’s report shall include a section, directly before the Opinion
section, with the heading “Basis for Opinion”, that:
I -
States that the audit was conducted in accordance with Philippine Standards
on Auditing.
II -
States whether the auditor believes that the audit evidence the auditor
has obtained is sufficient and appropriate to provide a basis for the
auditor’s opinion.
a. I only
c. Both I and II
b. II only
d. Neither I nor II
16. Communicating key audit matters in the auditor’s report is in the context of the
auditor having formed an opinion on the financial statements as a whole.
Communicating key audit matters in the auditor’s report is not:
a. A substitute for disclosures in the financial statements that the
applicable financial reporting framework requires management to make, or
that are otherwise necessary to achieve fair presentation.
b. A substitute for the auditor expressing a modified opinion when required
by the circumstances of a specific audit engagement.
c. Both a and b.
d. Neither a nor b.
17. Statement I: The auditor shall not communicate a matter in the Key Audit Matters
section of the auditor’s report when the auditor would be required to modify the
opinion.
Statement II: A matter giving rise to a modified opinion, or a material
uncertainty related to events or conditions that may cast significant doubt on
the entity’s ability to continue as a going concern are by their nature key audit
matters.
a. Only statement I is true.
c. Both statements are true.
b. Only statement II is true.
d. Both statements are false.
18. In an audit of financial statements, the auditor determined that there was
substantial doubt about the client's ability to continue as a going concern for
a reasonable period of time. The client appropriately disclosed this in the
financial statements. If there were no other significant audit findings, which
of the following indicates the proper form of the audit report that should be
issued?
a. A disclaimer of opinion
b. An adverse opinion with an other-matter paragraph
c. An unmodified opinion with an explanatory paragraph
d. A qualified opinion with an emphasis-of-matter paragraph
19. During an engagement to prepare financial statements, an accountant was precluded
by management from including a statement on each page of the financial statements
indicating that no assurance is provided. Which of the following actions would
be appropriate?
a. Issue an adverse opinion on the financial statements.
b. Issue a disclaimer making clear that no assurance is provided.
c. Limit the distribution of the financial statements to specific users.
d. Perform sufficient procedures to allow the accountant to provide limited
assurance on the financial statements.
20. Under which of the following circumstances would an auditor most likely issue
either a qualified or a disclaimer of opinion?
a. The financial statements contain an immaterial departure from the
financial reporting framework.
b. The auditor performed alternative substantive procedures to provide
adequate assurance due to missing documentation.
c. There is substantial doubt about the entity's ability to continue as a
going concern.
d. The client's attorney refused to respond to the letter of audit inquiry.
Page 3 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
21. In a case where an auditor observed that the accounting for a certain material
item is not in conformity with the financial reporting framework and that this
fact is prominently disclosed in a footnote to the financial statements, the
auditor should:
a. Express an unmodified opinion and insert a middle paragraph emphasizing
the matter by reference to the footnote.
b. Disclaim an opinion.
c. Not allow the accounting treatment for this item to affect the type of
opinion because the deviation from financial reporting framework was
disclosed.
d. Qualify the opinion because of the deviation from the financial reporting
framework.
22. In a case where the auditor cannot determine the amounts associated with certain
illegal acts
a. Issue
b. Issue
c. Issue
d. Issue
committed by the client, he or she would most likely:
either a qualified opinion or a disclaimer of opinion.
only an adverse opinion.
either a qualified opinion or an adverse opinion.
only a disclaimer of opinion.
23. A former auditor is requested by a client to re-issue a prior period report on
financial statements. Assuming all the necessary procedures have been performed,
the former auditor should:
a. Cancel the old date of the report.
b. Retain the date of the previous report.
c. Use the date of reissuing the report.
d. Use both the old and the new date.
24. Any deviation from the independence rule is considered:
a.
b.
Immaterial.
Slightly material.
c.
d.
Material.
Highly material.
25. If an accountant compiles financial statements for an entity and a member of the
engagement team has a direct financial interest in the entity, then the accountant
should:
a. Issue a report for the preparation of client financial statements.
b. Indicate the accountant's lack of independence in the final paragraph of
the compilation report.
c. Include a statement on each page of the financial statements that the
accountant is not independent.
d. Disclose in the notes to the financial statements a description of the
reason the accountant's independence is impaired.
26. Which of the following should a predecessor auditor perform before reissuing a
report on financial statements when those financial statements are to be
presented on a comparative basis with financial statements audited by another
auditor?
a. Obtain representation letters from management of the former client and
the successor auditor.
b. Change the date of the reissued report to match the date on which
additional procedures were performed.
c. Request the attorney's responses to identify any significant litigation
subsequent to the original date of the report.
d. Review minutes of board meetings held since the original date of the audit
report.
27. Several types of “special audit reports” are issued by CPAs.
Which one of the
following circumstances would not require the issuance of such a special report?
a. Client’s financial statements are prepared using the cash basis.
b. Client’s financial statements are prepared using the accrual basis.
c. The CPA has been retained to audit only the current assets.
d. The CPA has been retained to review the internal control system, not
the financial statements.
28. A member in public practice may perform for a contingent fee any professional
services for a client for whom the member or member’s firm performs:
a. an audit.
b. a review.
c. a compilation used only by management.
d. an audit of prospective financial information.
Page 4 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
29. Which of the following tax compliance services performed for an attest client
relating to the preparation of a tax return would impair a CPA's independence?
a. Signing and filing a client's tax return after receiving written
authorization from a client employee who reviewed the return and is
qualified to sign the return.
b. Making tax payments from a client's restricted account over which the CPA
has signing authority and control.
c. Filing a client-approved tax return electronically.
d. Remitting a check payable to a tax authority signed by the client.
30. An
accredited public accounting firm is conducting an audit of historical
financial statements. Which of the following services may the auditor provide to
the client while maintaining independence?
a. Drafting documents that form the basis of financial statements filed with
the SEC
b. Originating source data underlying the statement of financial position
c. Maintaining accounting records
d. Preparing an organizational chart of the accounting department
31. Which of the following terms used in the Code of Ethics indicates a presumptively
mandatory requirement?
a. Must
b. Should
c.
d.
Could
Consider
32. In which of the following circumstances is an accredited public accounting firm's
independence impaired with respect to a listed client?
a. The firm is a member of a trade association that is an audit client.
b. The firm's affiliate provides tax advisory services to a member of the
board of directors of the listed client.
c. The firm recommends a human resources software system to the issuer and
receives an undisclosed commission from the software vendor.
d. The firm advises the listed client on the tax consequences of alternative
ways of structuring a transaction after receiving approval of the audit
committee.
33. Solicitation consists of the various means that CPA firms use to engage new
clients. Which one of the following would not be an example of solicitation?
a. Accepting new clients that approach the firm.
b. Taking prospective clients to lunch.
c. Offering seminars on current tax law changes to potential clients.
d. Advertisements on the social media.
34. Evaluate the following cases with respect to the Code of Ethics:
Case I: Ms. Candy, a CPA, is a tenured teacher who is very popular among students.
Despite the COVID-19 pandemic, she has been diligent in providing online
consultations to students which include Boy. During that time, communication
between Ms. Candy and Boy was done using official email addresses and learning
management system accounts. At first, the exchanges were very general; sometimes
unrelated to school work (e.g., asking Boy about a sick family member, or how he
was getting along with online learning). One day, Boy texted Ms. Candy about
more personal feelings which Ms. Candy politely did not entertain. Ms. Candy
immediately informed the Dean about this.
Case II: Mr. Bing, a CPA and Basic Accounting teacher, emails parents using the
school’s email, notifying them that he is available on weekends and after school
to tutor Basic Accounting students online at a reasonable hourly rate. Several
of his students have been struggling with their lessons especially in adjusting
journal entries. Mr. Bing feels that the extra time out of school will benefit
the students.
a. Both Ms. Candy and Mr. Bing violated the Code.
b. Both Ms. Candy and Mr. Bing did not violate the Code.
c. Only Ms. Candy violated the Code.
d. Only Mr. Bing violated the Code.
35. Statement I: With respect to the Code of Ethics, the reasonable and informed
third party test does not need to be a CPA, but would possess the relevant
knowledge and experience to understand and evaluate the appropriateness of the
CPA’s conclusion in an impartial manner.
Page 5 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
Statement II: With respect to the Code of Ethics, if the CPA determines that the
identified threats to compliance with the fundamental principles are not at an
acceptable level, the accountant shall address the threats by eliminating them
or reducing them to an acceptable level.
a. Only statement I is true.
c. Both statements are true.
b. Only statement II is true.
d. Both statements are false.
36. The document used as the basis for recording sales transactions and updating the
accounts receivable master file is the
a. Sales order
b. Delivery receipt or Bill of lading
c. Sales invoice
d. Remittance Advice
37. Which of the following control objectives over the order to cash business process
is least concern for auditors of financial statements?
a. Customer orders are subject to approval by the credit department manager
after checking the credit limit of the customer.
b. Deliveries to customers are made accurately.
c. Customer orders are subject to approval by the warehouse department after
checking the availability of good being ordered by the customer.
d. Control totals for shipping documents and sales invoice are compared on
a daily basis.
38. Negative confirmation requests may be used when:
a.
b.
c.
d.
The assessed levels of inherent and control risks are HIGH.
A large number of small balances is involved.
A substantial number of errors is expected.
The auditor has reason to believe that respondents will disregard negative
confirmation requests.
39. Where no response is received to a positive confirmation request, the auditor
should
a. Contact the recipient to elicit a response; and perform alternative
procedures as necessary.
b. Issue a qualified opinion or an adverse opinion, depending on the
materiality involved.
c. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope
limitation.
d. Contact the recipient/respondent in order to force a response from such
recipient.
40. It is sometimes necessary for an auditor to use alternative audit procedure
specially in instances where reply on positive confirmation requests is not
received even for a second set of confirmation requests. In such a situation,
the best alternative procedure the auditor might resort to would be
a. Examining subsequent receipts of year-end accounts receivable.
b. Reviewing accounts receivable gaining schedule prepared at the BS date
and at a subsequent date.
c. Requesting that management increase the allowance for uncollectible
accounts by an amount equal to some percentage of the balance in those
accounts that cannot be confirmed
d. Performing an overall analytical review of accounts receivable and sales
on a year-to-year basis.
41. When rendering sales cut-off as an audit procedure to audit accounts receivable,
the auditor most likely would:
a. Vouch entries in the cash receipts journal before and after the balance
sheet date to gather evidence supporting the client’s existence and
completeness assertion on receivables.
b. Vouch entries in the sales journal before the balance sheet date to gather
evidence supporting the client’s completeness assertion on accounts
receivables and sales.
c. Vouch entries in the sales journal before the balance sheet date to gather
evidence supporting the client’s existence and occurrence assertion on
accounts receivables and sales.
d. Vouch entries in the cash receipt journal after the balance sheet date to
gather evidence supporting the client’s completeness assertion on
accounts receivable and sales.
Page 6 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
PROBLEM 1
The following summarizes the transactions recorded in the Accounts receivable-trade
account of Luffy Corporation:
Accounts Receivable – Trade
Receipts from customers, incl.
P212,000
overpayment of P25,000
1,520,000 Write offs
25,000 Merchandise returns
60,000 Allowance to customers for
shipping damages
Recovery of prev. write-offs
5,000 Collections on carrier claims
Refunds to customers w/credit
Collection on subscription
balances
5,000
Deposit on contract
50,000
Claim against common carrier
for shipping damages
5,000
IOUs from employees
1,000
Cash advance to affiliate
50,000
Advance to supplier
10,000
Jan. 1 balance, net of credit
P18,000 balance
Charge sales
Charge for consignment sales
Shareholders subscriptions
P1,460,000
7,000
5,500
3,000
2,000
45,000
Audit notes:
a. It was ascertained that half of the adjusted outstanding accounts receivabletrade balance are still currently collectible. The term of sale is 10/30, n/60.
Based on past experience, a 25% of customers whose accounts are still current
normally pay within the discount period.
b. 30% of the adjusted accounts receivable-trade is 60 days past due and is expected
to be only 90% collectible.
c. 20% of the adjusted accounts receivable-trade balance is more than 120 days past
due and is expected to be 50% collectible.
d. The balance of the allowance for bad debt at the beginning of the year was at
P25,915.
Requirements:
42. What is the correct accounts receivable – trade balance?
a. 309,500
c. 304,500
b. 311,500
d. 315,500
43. What is the carrying value of the accounts receivable –trade?
a.
b.
264,915
256,821
c.
d.
261,109
315,500
44. What is the correct bad debt expense for the year?
a.
b.
13,670
20,670
c.
d.
8,670
15,670
PROBLEM 2
You were assigned to audit the existence assertion of Brook Inc.’s receivables as of
December 31, 2021. You have decided to send confirmation letters to pre-selected
customers. The following is a summary of the confirmation replies of client customers
where you noted audit exceptions. Gross profit on sales is at 30%. Inventory balance
at year-end is based on a physical count conducted on December 31. Only goods received
on or before December 31 are included in the physical count and all deliveries made on
or before December 31 are excluded from the count.
Customer
Deku Inc.
Balance per
Books
P30,000
Ochaco Corp.
P300,000
Page 7 of 16
Customer’s Comments
Audit findings
Your Credit Memo No.
0978 representing price
adjustment dated
December 29, 2021
cancels this.
P140,000 was for Sales
Invoice No. 1190 were
for goods returned on
December 30, 2021.
Correct balance is
P160,000.
The Credit Memo was
taken up by Brook
Inc. in January 2022.
Returned goods were
received on December
31, 2021. Credit Memo
No. 1256 were issued
and recorded on
January 5, 2022
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
Katsuki Co.
P288,000
Tsuyu Inc.
P265,000
AUD Final Pre-Board Exam
This is for outstanding
sales invoice No. 1280
which should have been
priced at P122 per
unit. You erroneously
billed us P144 per
unit.
Our records show a
correct balance of
P220,000. The
difference is for Sales
Invoice No. 1109 which
were for goods
delivered to us but
were subsequently
returned to you because
the goods were with
wrong specifications.
The customer
complaint is valid.
Brook Inc. recorded
the transaction as a
purchase by crediting
accounts payable. The
related inventories
received in January.
Requirements:
45. What is the effect to the net income, if there are any, as a result of the
customer’s Deku Inc. reply?
a. Decrease by P30,000
c. Decrease by P9,000
b. Increase by P30,000
d. No effect
46. What is the effect to the net income, if there are any, as a result of the
customer’s Ochaco’s reply?
a. Decrease by P160,000
b. Decrease by P140,000
c.
d.
Decrease by P42,000
No effect
47. The accounts receivable from Katsuki Co. is:
a.
b.
Overstated by P244,000
Understated by P44,000
c.
d.
Overstated by P44,000
Correct.
48. What is the effect to the net income, if there are any, as a result of the
customer’s Tsuyu Inc. reply?
a. Decrease by P45,000
b. Increase by P45,000
c.
d.
Decrease by P13,500
No effect.
PROBLEM 3:
The following reconciliation was provided by the accountant of Asta Corp. in line with
your audit of its accounts receivable account:
Balance per General Ledger
1,250,000
a. Sales invoice for goods delivered on December 28 received
by the customer on December 31 shipped FOB Destination
(121,000)
b. Sales invoice for goods delivered to a consignee on
250,000
December 30
c. Sales invoice for goods delivered to a customer on January
90,000
2 shipped FOB Shipping Point
d. Sales invoice for goods delivered to a customer on December
30 received by the customer on January 3 shipped FOB
(143,000)
Buyer’s Warehouse
e. Check collection from customer dated January 3 received on
180,000
December 30
f. Check collection from customer dated December 28 received
(120,000)
on December 30
g. Credit balance in one of the customer accounts resulting
(95,000)
from overpayment
Balance per Subsidiary Ledger
1,291,000
49. What is the correct balance of Accounts Receivable?
a.
b.
977,000
1,072,000
c.
d.
1,167,000
1,257,000
50. Which of the following does not belong to the group?
a.
b.
c.
d.
Page 8 of 16
Materials Requisition Form
Purchase Order
Delivery Receipt or Bill of Lading
Accounts Payable Voucher
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
51. Which of the following is least likely concern of auditors of financial statements
when gathering an understanding of the purchase to pay business process?
a. Requisitions are made by operating departments needing the item to be
purchased after due approval to avoid understocking of inventories.
b. Documents in the voucher package are matched before preparing the accounts
payable voucher.
c. Documents in the voucher package are matched before approving the accounts
payable voucher and signing the disbursement checks.
d. Documents in the voucher package are automatically cancelled by the person
who signed the check last in the treasury department.
52. When auditing trade payables, the auditor should perform tests that shall focus
on which assertion/s?
a. Existence/Occurrence and Completeness
b. Existence/Occurrence and Valuation
c. Completeness and Valuation
d. Existence and Rights/Obligation
53. A payment to a supplier was posted in the subsidiary ledger of another supplier,
which of the following control procedures would help uncover this error?
a. Comparing total postings to the general ledger against the total postings
to the subsidiary ledger.
b. Monitoring the prenumbering of the receiving report in preparing the
accounts payable voucher.
c. Comparing the supplier’s monthly billing statements against the
subsidiary records.
d. Sending monthly billing statements to suppliers.
54. An auditor renders purchases cut-off as part of his audit of the financial
statement’s client trade accounts payable primarily to:
a. Identify possible receipts of goods just before year-end recorded in
voucher register the following period.
b. Identify possible receipt of goods just after year-end recorded
purchases as at the balance sheet date.
c. Identify possible receipt of goods just after year-end recorded
purchases in the voucher register the following period.
d. Identify possible receipts of goods just before year-end recorded in
voucher register at the balance sheet date.
the
as
as
the
55. Which of the following is correct when using confirmation as a substantive test
procedure in an audit of financial statements?
a. Whether auditing receivables or payables, sample selection should be based
on the materiality of the accounts to be confirmed, that is, the higher
the account balance, the higher the likelihood it would be included in
the sample to be confirmed.
b. When confirmation is used as a test for auditing payables, the auditor
should base sample selection on accounts whether with outstanding balance
or not as long as the client had past transactions with them.
c. Blank confirmation letter is usually extensively used in auditing trade
receivables.
d. When confirmation should focus on gathering evidence about the existence
assertion when used to test trade payables.
PROBLEM 4:
The following resulted from your purchases cut-off in line with your audit of Lenna
Corp. financial statements for the period December 31, 2023.
a. Inventories were physically counted on December 30, 2023. As a result, only goods
received on or before December 30 are included in the physical count which
amounted to P235,400.
b. The unadjusted balances of Purchases and Accounts Payable amounted to P2,756,900
and P435,800, respectively.
c. The following are the Purchase Journal entries before and after the balance sheet
you gathered as a result of your cut-off procedure:
Page 9 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
December Purchase Journal Entries
Receiving
Goods
Amount
Report
Receipt Date
Number
12564
December 28
P21,900
12565
December 29
18,700
12566
December 29
26,000
12567
December 30
28,500
January Purchase Journal Entries
Receiving
Goods
Amount
Report
Receipt Date
Number
12568
December 30
P31,000
12569
December 31
28,900
12570
January 2
15,000
12571
January 3
22,000
Remarks
FOB Destination
FOB Shipping Point
From consignor. 60% of
goods were sold at a gross
profit rate of 50% based
on sales. Commission as
agreed upon is 20%. Only
the unsold portion of the
goods were included in
physical count. No entries
had been made yet on the
consignment sale.
FOB Buyer
Remarks
FOB Destination
FOB Shipping Point
FOB Seller’s Warehouse,
Goods in-transit
FOB Shipping point
Requirements:
56. What is the adjusted purchases as a result of your audit?
a. 2,805,800
c. 2,831,800
b. 2,776,900
d. 2,790,800
57. What is the adjusted accounts payable balance as a result of your audit?
a.
b.
515,900
509,660
c.
d.
535,660
480,760
58. What is the adjusted inventory balance as a result of your audit?
a.
b.
279,300
240,000
c.
d.
268,900
253,900
PROBLEM 5:
Emilio Corp. reported total sales at P9M. Goods sold came with a 5 for P1,000 customer
loyalty award credit. Each customer loyalty award point entitles the customer to
purchase goods at a rate of 1 point to P10. The company estimates that 60% of the
customer loyalty points will ultimately be redeemed. A total of 16,200 points were
redeemed by the customers by the end of the year.
59. What is the correct sales for the year?
a.
b.
9,000,000
8,823,529
c.
d.
8,730,000
8,737,864
60. What is the correct unearned income from customer loyalty award credits as at
year-end?
a. 104,854
b. 105,882
c.
d.
157,282
70,588
PROBLEM 6:
Carter Corp. reported the following liability balances as of December
Trade payables, net of supplier debit balances amounting
to P25,000
Trade note payable, due March 31, 2025
10% note payable, bank due March 31, 2024
12% serial bonds payable maturing at a rate of 50,000
every July 1 and January 1
9% note payable, bank due December 31, 2028
8% bonds payable, due December 31, 2028 (issued for
trading purposes)
Current tax payable
Deferred tax liability, net of deferred tax asset
amounting to P20,000
Page 10 of 16
31, 2023:
210,000
100,000
200,000
250,000
225,000
150,000
25,000
30,000
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
Audit notes:
a. The 10% note payable to the bank was refinanced on March 31, 2024 by issuing a
P180,000, 10%, 3-year notes payable. The right to refinance the liability was
obtained on March 31, 2024.
b. The final payment on the 12% serial bonds payable is on January 1, 2027.
c. A debt covenant to maintain a working capital ratio of 2:1 was not achieved in
relation to the 9% note payable bank. As such, the note is due and demandable as
of December 31, 2023. As at the balance sheet date, the bank agreed to provide
the company a grace period of up to December 31, 2024 to rectify the breached
agreement.
d. There were no accrued interest on any liabilities as of December 31, 2023.
Requirements
61. What is the total current liabilities?
a. 935,000
b. 710,000
c.
d.
610,000
1,160,000
62. What is the total non-current liabilities?
a.
b.
475,000
300,000
c.
d.
505,000
525,000
PROBLEM 7:
The following information were deemed relevant in your audit of Gupta Corp.’s financial
statements for the period ended December 31, 2023. The financial statements were
approved for issuance by the BOD on April 15, 2024.
a. The company entered into a non-cancelable lease agreement on a warehouse in
January of 2020. In 2023, the company has completed the construction of its new
building warehouse thus is no longer in need of the leased property. Since the
lease agreement is a non-cancelable one, the company has to pay lease termination
fee amounting to P800,000. The company is also not allowed to sub-lease the
property. The lease has three more years to run (2024-2026). The annual lease
payment is at P300,000 every December 31. The market rate of interest prevailing
at year end is at 10%.
b. The company guaranteed an officer’s loan in January 2024. The P500,000 officer’s
loan matures on March 31, 2024. The officer defaulted on the payment of the loan
upon maturity. The bank has invoked the guarantee agreement and is now demanding
payment from the company.
Requirements
63. What is the proper treatment of the information in audit note a?
a. Accrue liability at P800,000
c. Accrue liability at P900,000
b. Accrue liability at P746,056
d. Accrue liability at P676,183
64. What is the proper treatment of the information in audit note b?
a.
b.
c.
d.
Accrue liability at P500,000.
Neither accrue nor disclose.
Disclose the information in the notes to FS.
Accrue liability at P50,000.
65. Which of the following audit procedures will the external auditor most likely do
in auditing a financial statement client’s stockholders equity accounts?
a. Tracing share issue transactions from the stock transfer agent records to
the company’s journals and ledgers.
b. Vouching share dividend declaration to the authorization of the board of
directors through the BOD meeting minutes.
c.
Reference to stock market quotations for a 20% stock dividend
declaration.
d. All of the above are relevant audit procedures.
PROBLEM 8:
You were assigned to audit Chopper Corp.’s Equipment accounts in line with your audit
firm’s financial statements audit for the year ended December 31, 2023. The following
information resulted from your examinations:
a. Equipment 12a was acquired when the company commenced its operations at the
beginning of 2021. The recorded cost per books was at P4M. Investigation revealed
that the amount was in fact the total installment price of the said equipment.
The amount was paid in two equal installments (at the end of 2021 and 2022).
Installation costs amounting to 81,778 was charged to 2021 operating expense.
The prevailing market rate of interests were 9%, 10% and 11% in January 2021,
December 2021 and December 2022, respectively.
Page 11 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
b. Equipment 13b recorded in the books at a cost of P2M, was acquired on August 31,
2021 through issuance of 20,000 (P100par) Chopper Corp.’s ordinary shares. The
fair market value of the shares on this date was at P125 per share. Chopper Corp.
received cash amounting to P200,000 as a result of this transaction. The company
expects to incur dismantling cost on this equipment at P214,359. The market
rate of interest on this date was at 10%.
c. Equipment 14c recorded in the books at a cost of P3.8M. was acquired on March
31, 2022 in exchange of another non-monetary asset with a fair market value on
this date at P3.2M. The non-monetary asset had a carrying value of P4M at the
time of exchange. The company paid P200,000 cash on the exchange transaction
which was considered to have the necessary commercial substance.
d. The Equipment are estimated to have a useful life of eight years with a 10%
salvage value based on original cost.
Required:
66. Assuming straight-line method is used to depreciate the equipment, what is the
depreciation expense in 2022?
a. 495,000
c. 1,057,500
b. 961,875
d. 1,006,875
67. Assuming sum-of-year’s digits is used to depreciate the equipment, what is the
depreciation expense in 2023?
a. 1,600,000
b. 1,676,667
c.
d.
1,556,250
1,622,917
68. Assuming double-declining method is used to depreciate the equipment, what is
the depreciation expense in 2022?
a. 1,862,500
b. 1,609,375
c.
d.
1,954,167
1,687,125
PROBLEM 9:
On January, 2023 GOT Corp. grants each of its 100 employees in the sales department
share options. The share options will vest at the end of 2025, provided that the
employees remain in the entity’s employ and provided that the sales increase by at
least 100% by 2025. Actual sales in 2022 (base year) is 2M units. If the sales volume
increase by an average of 100% to 120% by 2025, each employee will receive 200 options
each. If sales volume increase by 121%-150% by 2025, each employee will receive 300
options each. If sales volume increase by more than 150% by 2025, each employee will
receive 400 options each. Five options plus P120 shall entitle the holder to acquire
one ordinary shares (P100 par) at any time up to December 31, 2027.
On the grant date, the company estimates that the share options have a fair value of
P21 per option. There has been a 30% average increase in annual sales for the past
three years and that the company expects the same pattern during the vesting period.
The following information are deemed relevant for your analysis:
Actual
Estimated additional
Actual
Year
employees
employees who will
Sales
leaving the
leave by the end
(Units)
company
2025
2023
4
5
2,500,000
2024
2
4
3,500,000
2025
9
5,100,000
Requirements:
69. What is the compensation expense in 2025?
a. 378,000
c.
b. 238,000
d.
363,000
336,000
70. Assuming that 40% of the options granted to employees were exercised, the entry
to record the exercise shall require a credit share premium at:
a.
b.
320,000
340,000
c.
d.
280,000
312,000
END OF EXAMINATION
Page 12 of 16
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
AUD Final Pre-Board Exam
ANSWERS & SOLUTIONS/CLARIFICATIONS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 13 of 16
B
C
A
C
C
C
D
D
C
B
C
C
C
C
D
C
C
C
B
D
D
A
B
D
B
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
A
B
C
B
D
B
C
A
D
C
C
C
B
A
A
C
C
C
D
A
B
C
C
C
C
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
A
C
C
A
B
A
B
C
D
A
B
D
B
C
B
B
C
A
D
B
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
Page 14 of 16
AUD Final Pre-Board Exam
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
Page 15 of 16
AUD Final Pre-Board Exam
0915-2303213  resacpareview@gmail.com
AUDITING
ReSA Batch 46 - October 2023 CPALE Batch
16 Sept 2023  11:45 AM to 02:45 PM
Page 16 of 16
AUD Final Pre-Board Exam
0915-2303213  resacpareview@gmail.com