You correctly answered13out of30questions with an accuracy of43.33%.You gained270experience points!Answer More ChallengesQuestion 1An auditor is auditing the financial statements of Gawad Kalinga, a not-for-profit organization that receives financial assistance from government agencies. To detect misstatements in Gawad Kalingas financial statements resulting from violations of laws and regulations, the auditor should focus on violations thatcould result in criminal prosecution against the organizationhave a direct and material effect on the amounts in the organizations financial statementsdemonstrate the existence of material weaknessesinvolve reportable conditions to be communicated to the organizations trustees and the funding agenciesAuditing Theory - Audit Sampling (Average)Question 2Ernie Dela Cruz, CPA, has been approached by a prospective new audit client, Double Dragon Enterprises, Inc. Double Dragon had previously been audited by another CPA. Before accepting the engagement, Dela Cruz discussed several matters with Double Dragons controller and (with Double Dragons permission) the other CPA. As a result of these discussions, the following information was obtained.Incorporated in 1992, Double Dragons primary business is buying, developing, selling, and leasing commercial real estate. Apartment complexes, shopping malls, and industrial parks make up the major portion of the companys business. Starting out in Albuquerque, New Mexico and the surrounding area, Double Dragon gradually expanded its operations to include most of southwestern United States, including the Phoenix--Scottsdale--Mesa area of Arizona.After two years of losses, the company reported its first earnings in 1994. From 1995 to 2000, revenues and earnings increased dramatically. Earnings for 2001 and 2002, however declined from earlier levels. For the current year, 2003, unaudited net income has rebounded to the 2000 level.Dela Cruz has learned from discussions with Double Dragons controller that, as of 12/31/03, the end of the current year, the company was in the process of completing a major mall project. The company currently owns several apartment complexes and leases its completed shopping malls to numerous retail establishments. After having been developed, industrial properties are sold either to municipalities or to companies locating in the complexes.In discussing past audits with the CPA formerly engaged by Double Dragon, Dela Cruz learned that several disagreements had arisen over the years, many of which had not been resolved to the satisfaction of the former auditors. The disagreements related to accounting matters as well as to the substance of certain transactions with lessees.Audit reports frequently contain an explanatory paragraph following the scope paragraph or the opinion paragraph.What condition under which one might expect to find an explanatory paragraph following the opinion paragraph of the audit report.Some material receivables are not confirmed by the Companys debtorsDefault by the Company in paying its bank loansThe corporate counsel failed to submit their Certification despite the persistent follow up of the auditors.Departure from a designated principle and theauditor agrees with the departureAuditing Theory - Audit Planning (Difficult)Question 3Ernie Dela Cruz, CPA, has been approached by a prospective new audit client, Double Dragon Enterprises, Inc. Double Dragon had previously been audited by another CPA. Before accepting the engagement, Dela Cruz discussed several matters with Double Dragons controller and (with Double Dragons permission) the other CPA. As a result of these discussions, the following information was obtained.Incorporated in 1992, Double Dragons primary business is buying, developing, selling, and leasing commercial real estate. Apartment complexes, shopping malls, and industrial parks make up the major portion of the companys business. Starting out in Albuquerque, New Mexico and the surrounding area, Double Dragon gradually expanded its operations to include most of southwestern United States, including the Phoenix--Scottsdale--Mesa area of Arizona.After two years of losses, the company reported its first earnings in 1994. From 1995 to 2000, revenues and earnings increased dramatically. Earnings for 2001 and 2002, however declined from earlier levels. For the current year, 2003, unaudited net income has rebounded to the 2000 level.Dela Cruz has learned from discussions with Double Dragons controller that, as of 12/31/03, the end of the current year, the company was in the process of completing a major mall project. The company currently owns several apartment complexes and leases its completed shopping malls to numerous retail establishments. After having been developed, industrial properties are sold either to municipalities or to companies locating in the complexes.In discussing past audits with the CPA formerly engaged by Double Dragon, Dela Cruz learned that several disagreements had arisen over the years, many of which had not been resolved to the satisfaction of the former auditors. The disagreements related to accounting matters as well as to the substance of certain transactions with lessees.In deciding whether to accept this engagement, which of the following will be considered the least?Competence of Dela Cruz to satisfactorily perform the auditSeriousness of disagreements with the prior auditor and their potential impact on the financial statementsWhether the disagreements demonstrate lack of management integrityDuration of the audit procedures.Auditing Theory - Audit Planning (Difficult)Question 4Ernie Dela Cruz, CPA, has been approached by a prospective new audit client, Double Dragon Enterprises, Inc. Double Dragon had previously been audited by another CPA. Before accepting the engagement, Dela Cruz discussed several matters with Double Dragons controller and (with Double Dragons permission) the other CPA. As a result of these discussions, the following information was obtained.Incorporated in 1992, Double Dragons primary business is buying, developing, selling, and leasing commercial real estate. Apartment complexes, shopping malls, and industrial parks make up the major portion of the companys business. Starting out in Albuquerque, New Mexico and the surrounding area, Double Dragon gradually expanded its operations to include most of southwestern United States, including the Phoenix--Scottsdale--Mesa area of Arizona.After two years of losses, the company reported its first earnings in 1994. From 1995 to 2000, revenues and earnings increased dramatically. Earnings for 2001 and 2002, however declined from earlier levels. For the current year, 2003, unaudited net income has rebounded to the 2000 level.Dela Cruz has learned from discussions with Double Dragons controller that, as of 12/31/03, the end of the current year, the company was in the process of completing a major mall project. The company currently owns several apartment complexes and leases its completed shopping malls to numerous retail establishments. After having been developed, industrial properties are sold either to municipalities or to companies locating in the complexes.In discussing past audits with the CPA formerly engaged by Double Dragon, Dela Cruz learned that several disagreements had arisen over the years, many of which had not been resolved to the satisfaction of the former auditors. The disagreements related to accounting matters as well as to the substance of certain transactions with lessees.If you are Ernie Dela Cruz, what is the item that I will be most concerned about?revenues are increasing dramatically despite the first losses in its first 2 years.unfinished and ongoing construction projects of Double Dragonincrease in unaudited earnings suggests possible overstatement of revenues or understatement of expensesaggressive growth strategy of Double DragonAuditing Theory - Audit Planning (Difficult)Question 5Which of the following statement best describes systematic auditing?Systematic auditing means that the auditor studies and tests the system of internal control before testing the substance of transactions and balances.Strong internal control increases the level of confidence and decreases the extent of transaction and balance testing.Systematic auditing means that the auditor studies and tests the system of internal control before testing the substance of transactions and balances. Strong internal control increases the level of confidence and decreases the extent of transaction and balance testing.Systematic auditing means that the auditor studies and tests the system of internal control before testing the substance of transactions and balances. Strong internal control increases the level of confidence and increases the extent of transaction and balance testing.Auditing Theory - Audit Planning (Easy)Question 6As a new staff, Michi Ang was assigned to monitor the disclosures of her new client, a publicly listed company. Before going to her lunch, she would access the website by the Philippine Stock Exchange and look for disclosures related to her company. On one occasion, she suddenly noticed that all disclosures filed are digitally signed y the Compliance Information Officer. She wanted to raise this observation to her boss. If her boss ask her to define what a digital signature is, what could be her best answerthe computed digest of the senders digital certificateallows digital messages to be sent over analog telephone linesthe encrypted mathematical value of the message senders namederived from the digest of a document that has been encrypted with the senders private keyAuditing Theory - Audit Planning (Difficult)Question 7Michael & Jones, CPAs, has just accepted an engagement to audit Ginger and Cinnamon, a small manufacturer of spice products. Jennifer Castro has been selected as the in-charge auditor for the engagement, and Mark Cruz will be her assistant. In planning the audit field work, Jenkins makes the following assignments of audit tasks:Jennifer CastroMark Cruz

Internal audit

Test internal control over cash receiptsAudit property, plant, and equipment balances

Audit accounts receivable balancesTest internal control over cash disbursements

Final audit

Test internal control over salesAudit cash balances

Obtain signed copy of engagementAudit inventory balances

If you are Jennifer Castro, what is the major strength of this audit planning?Audit procedures related cash, accounts receivable and inventory balances will be performed.The auditors tested internal control over cash receipts and disbursements before auditing cash balances.The audit tasks are delegated and clear.The signed copy of the engagement will be obtained by Jennifer CastroAuditing Theory - Audit Planning (Difficult)Question 8Michael & Jones, CPAs, has just accepted an engagement to audit Ginger and Cinnamon, a small manufacturer of spice products. Jennifer Castro has been selected as the in-charge auditor for the engagement, and Mark Cruz will be her assistant. In planning the audit field work, Jenkins makes the following assignments of audit tasks:Jennifer CastroMark Cruz

Internal audit

Test internal control over cash receiptsAudit property, plant, and equipment balances

Audit accounts receivable balancesTest internal control over cash disbursements

Final audit

Test internal control over salesAudit cash balances

Obtain signed copy of engagementAudit inventory balances

If you are Jennifer Castro, what is a correct audit procedure that you can do?I will forego with the internal control over sales transactions to save time because the audit of cash and accounts receivables balances will mitigate any audit risk.Instruct that internal control over sales be performed on the interim audit instead on the final audit.I will divide the testing of internal control over cash receipts and disbursements to 2 auditors to ensure that 2 eyes will be looking into the process. To follow the money flow is crucial.I will ensure that we obtain the signed copy of the engagement letter before the audit closing meeting.Auditing Theory - Audit Planning (Difficult)Question 9Michael & Jones, CPAs, has just accepted an engagement to audit Ginger and Cinnamon, a small manufacturer of spice products. Jennifer Castro has been selected as the in-charge auditor for the engagement, and Mark Cruz will be her assistant. In planning the audit field work, Jenkins makes the following assignments of audit tasks:Jennifer CastroMark Cruz

Internal audit

Test internal control over cash receiptsAudit property, plant, and equipment balances

Audit accounts receivable balancesTest internal control over cash disbursements

Final audit

Test internal control over salesAudit cash balances

Obtain signed copy of engagementAudit inventory balances

What is the order of steps in completing the audit?audit planning, interim audit, final audit, audit reportaudit planning, interim audit, audit reportaudit planning, audit report, final auditaudit planning, final audit, audit reportAuditing Theory - Audit Planning (Difficult)Question 10Which of the following statements best describes the auditors responsibility to detect conditions relating to financial stress of employees or adverse relationships between a company and its employees?These conditions relate to fraudulent financial reporting, and an auditor is required to plan the audit to detect these conditions when the client is exposed to a risk of misappropriation of assets.The auditor is required to plan the audit to detect these conditions on all audits.The auditor is required to plan the audit to detect these conditions whenever they may result in misstatements.The auditor is not required to plan the audit to discover these conditions, but should consider them if he or she becomes aware of them during the audit.Auditing Theory - Audit Planning (Average)Question 11Ken Perez, a CPA wanted to know what advantage will it have if require the paymaster to deliver all unclaimed paychecks to the internal audit department?to prevent the paymaster from cashing unclaimed checksto avoid paying absent employees for paydayto prevent an absent employees check from being lostto detect a phantom employee for whom a check was producedAuditing Theory - Audit Planning (Easy)Question 12Which steps in the Financial Accounting Process are in the correct sequence?record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted trial balance, prepare financial statementsrecord the transaction, post to the ledger, prepare the adjusted trial balance, prepare financial statements, record closing entriesrecord the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting entries, prepare financial statementsrecord the transaction, prepare the unadjusted trial balance, record adjusting journal entries, record closing entries, prepare financial statementsAuditing Theory - Audit Planning (Easy)Question 13In an audit closing meeting, the newly appointed Country Manager of ABN AMRO asked you how their system can be protected against subversive threats. Which of the following will you not mention?field interrogationone-time passwordsfirewallsdata encryptionAuditing Theory - Audit Planning (Easy)Question 14Which of the following statements is not correct?the voucher system permits the firm to consolidate payments of several invoices on one vouchermany firms replace accounts payable with a voucher payable systemthe sum of the paid vouchers represents the voucher payable liability of the firmthe voucher system is used to improve control over cash disbursementsAuditing Theory - Audit Planning (Easy)Question 15An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should:Express an opinion only on the current year's financial statements and make noreference to the prior year's statements.Indicate the substantive reasons for the qualification in the predecessor auditor's opinion.Explain to the client that comparative financial statements may notbe presented under these circumstances.Issue an updated comparative audit report indicating the division of responsibility.Auditing Theory - Uncategorized (Difficult)Question 16A person identified as an audit committee financial expert of an issuer generally must have acquired the attributes of a financial expert through any of the following experiences, except:Assessing the performance of public accountants with respect to preparation, auditing, or evaluation of financial statements.Serving on at least one other issuer's audit committee or disclosure committee of the board of directors.Actively supervising a principal financial officer or principal accounting officer.As a principal financial officer, principal accounting officer, controller, public accountant, or auditor.Auditing Theory - Uncategorized (Difficult)Question 17After the preliminary phase of the review of a clients computer controls, an auditor may decide not to perform test of controls (compliance tests) related to the controls within the computer portion of the clients internal control. Which of the following would not be a valid reason for choosing to omit such tests?The time and peso costs of testing exceed the time and peso savings in the substantive testing if the tests of controls show the controls to be operative.The controls appear adequate.The controls duplicate operative controls existing elsewhere in the structure.There appear to be a major weaknesses that would preclude reliance on the stated procedureAuditing Theory - Computerized Auditing (Average)Question 18Hector just resigned from Isla Lipana as a Senior Associate. He was hired as the Accounting Manager of Ayala Land Inc. His CFO asked his advice how they can ensure that their accounting system are protected from computer viruses. Which of the following policies are relevant excepthe policy that permits users to take files home to work on themthe policy that all software upgrades are checked for viruses before they are implementedthe policy that current versions of antivirus software should be available to all usersthe policy on the purchase of software only from reputable vendorsAuditing Theory - Audit Planning (Average)Question 19Which of the following is most likely to be a response to the auditors assessment that risk of material misstatement due to fraud for the existence of inventory is high?Request that inventory counts at the various locations be counted on different dates so as to allow the same auditor to be present at every count.Request that inventories be counted prior to year end.Perform analytical procedures rather than taking test counts.Observe test counts of inventory at certain locations on an unannounced basis.Auditing Theory - Audit Planning (Average)Question 20With a limited work force and a desire to maintain strong internal control, which combination of duties performed by a single individual presents the least risk exposure?preparing the accounts payable journal voucher and recording it in the general ledgermaintaining the cash disbursements journal and recording direct labor costs applied to specific jobsmaintaining the inventory ledger and recording the inventory journal voucher in the general ledgerrecording the inventory journal voucher in the general ledger and maintaining custody of inventoryAuditing Theory - Audit Planning (Easy)Question 21Transaction authorization occurs in a traditional manufacturing environment in all of the following ways exceptthe sales department modifies work orders to match changes in demandproduction planning and control initiates production with a work orderthe materials requisition authorizes the storekeeper to release materials to the work centersmovement of the work through the production process follows the move ticketAuditing Theory - Audit Planning (Easy)Question 22Jane Guerero is a newly promoted Senior Associate in Deloitte. Her new staff asked her advice which one of the following is not an audit objectives in the Electronic Data Interchange (EDI) environment?unauthorized trading partners cannot gain access to database recordsbackup procedures are in place and functioning properlya complete audit trail of EDI transactions is maintainedall EDI transactions are authorizedAuditing Theory - Audit Planning (Average)Question 23Auditors of ERP systemsneed not worry about segregation of duties.find independent verification easyneed not worry about system access since the ERP determines itmay feel that the data warehouse is too clean and free from errorsAuditing Theory - Audit Planning (Easy)Question 24An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate?Observation and inspection of records.Inquiry and inspection of recordsConfirmation and reperformanceAnalytical procedures and reperformance.Auditing Theory - Uncategorized (Average)Question 25Which of the following is not a requirement in managements report on the effectiveness of internal controls over financial reporting?A statement of managements responsibility for establishing and maintaining adequate internal control user satisfaction.A statement identifying the framework used by management to conduct their assessment of internal controls.A statement that the organizations internal auditors has issued an attestation report on managements assessment of the companies internal controls.An explicit written conclusion as to the effectiveness of internal control over financial reporting.Auditing Theory - Audit Planning (Easy)Question 26After an audit report is issued, an auditor discovers that an important audit procedure was not performed. Which of the following procedures is acceptable in this situation?No further action is necessary if the audit report can still be supported.Immediately notify known users of the omitted audit procedure.Require that the client notify financial statements users of the omitted procedures.Let the current report stand and correct material errors on the next audit report.Auditing Theory - Uncategorized (Average)Question 27When performing a test of a control with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the populationmay occur in a systematic pattern, thus destroying the sample randomness.must be recorded in a systematic pattern before the sample can be drawn.may systematically occur more than once in the sample.must be systematically replaced in the population after sampling.Auditing Theory - Audit Sampling (Average)Question 28After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up working paper review. This second review usually focuses onFraud involving the clients management and its employees.The materiality of the adjusting entries proposed by the audit staff.The fair presentation of the financial statements in conformity with PFRS and PAS.The communication of internal control weaknesses to the clients audit committee.Auditing Theory - Uncategorized (Uncategorized)Question 29The materiality of the adjusting entries proposed by the audit staff.2. The communication of internal control weaknesses to the clients audit committee.DIF: 2 TOP: Audit Planning29. A recently passed accounting graduate processed the following business transaction.An unsecured loan for P3.2 million was granted to Diane Gregorio, the chief executive officer of Tea House, Inc., at the beginning of 2014. On December 31, 2014, the company drew a check for P3.2 million on Bank A for deposit in Bank B. The transaction was recorded by a debit to cash in Bank B and a credit to loans receivable-officers. The check was not listed as outstanding on Bank A. It did appear as a credit on the December 31 bank statement received from Bank B. On January 2, 2015, the company made a journal entry debiting loans receivable-officers and crediting cash in Bank A for P3.2 million. The loan accounted for 35% of the entitys total assets.Is there a fraud?This set of journal entries is an example of fraudulent misrepresentation in the form of kiting.There might be fraud in this case but the data is incomplete.There is no fraud but a misstatement because the accountant is a fresh graduate.There is no fraud and possible misstatement in this situation.Auditing Theory - Audit Planning (Difficult)Question 30JM is the manager of the audit engagement of Coca Cola Bottlers. He noticed that Coca Cola is using the latest electronic data interchange to manager their vendors databases. In his test of controls, he would ensure that the customers of Coca Cola will routinelyaccess the vendor's accounts receivable file with read/write authorityaccess the vendor's open purchase order file with read-only authorityaccess the vendor's price list file with read/write authorityaccess the vendor's inventory file with read-only authorityAuditing Theory - Audit Planning (Easy)