□ AUD INVESTMENTS

1. Which of the following is not one of the auditor's primary ob|ectives In an audit of trading
securities?
A. To determine whether securities are authentic.
B. To determine whether securities are the property of the client.
C. To determine whether securities actually exist.
D. To determine whether securities are properly classified on the balance sheet date.

2. Which of the following is the least effective audit procedure regarding the existence
assertion for the securities held by the auditee?
A. Examination of paid checks issued in payment of securities purchased.
B. Vouching all changes during the year to supporting documents.
C. Simultaneous count of liquid assetscc8c
D. Confirmation from the custodian.

3. Which of the following is the most effective audit procedure for verification of dividends
earned on investments in equity securities?
A. Tracing deposited dividend checks to the cash receipts book.
B, Reconciling the amounts received with published dividend records.
C. Comparing the amounts received with preceding year dividends received.
D. Recomputing selected extensions and' footings of dividend schedules and comparing
totals to the general ledger.

4 . In confirming with an outside agent, such as a financial institution, that the agent is holding
Investment securities in the client's name, an auditor most likely gathers evidence in support of
management's financial statement assertions of existence and
A. Valuation
B. Rights and obligations
C. Completeness
D. Presentation and disclosure

5. In establishing the existence and ownership of an investment held by a corporation in the

form of publicly traded stock, an auditor should inspect the securities and
A. Obtain written representations from management confirming that the securities are
property classified as trading securities.
B. Inspect the audited financial statements of the investee company.
C. Confirm the number of shares held by an independent custodian.
D. Determine that the investment is carried at fair value.

6. An auditor is most likely to verify the interest earned on bond investment by

A . Verifying the receipt and deposit of interest checks.
B. Confirming the bond interest rate with the issuer of the bonds.
C. Recomputing the interest earned on the basis of face amount, Interest rate, and period held.
D. Testing controls relevant to cash receipts.
7. Which of the following provides the best form of evidence pertaining to the annual valuation of
an investment in which the Independent auditor's lient owns a 30% voting interest?
A. Market quotations of the investee company's stock.
8. Current fair value of the investee company's assets
C. Historical cost of the investee company's assets.
D. Audited financial statements of the investee company.

8. The auditor can best verify a client's bond sinking fund transactions and year-end balance
A. Confirmation with individual holders of retired bonds.
B. Confirmation with the bond trustee.
C. Recomputation of interest expense, interest payable, and amortization of bond discount or
premium.
D. Examination and count of the bonds retired during the year.

9. An auditor who physically examines securitiles should Insist that a client representative be
present in order to
A. Detect fraudulent activities.
B. Lend authority to the auditor's directives.
C. Coordinate the retumn of securities to the proper locations.
D. Acknowledge the receipt of securities returned.

10. In testing long-term investments, an auditor ordinarily would use analytical procedures to
ascertain the reasonableness of the
A. Classification between current and noncurrent portfolios
B. Valuation of marketable equity securities.
C. Existence of unrealized gains or losses in the portfolio
D. Completeness of recorded investment income,

□ LIABILITIES
1. In auditing accounts payable, an auditor's procedures most likely will focus primarily on
management's assertion of
A. Existence C. Completeness
B. Presentation and disclosure D.Valuation and allocation

2. An auditor performs a test to determine whether all merchandise for which the client was
billed was received. The population for this test consists of all
A. Merchandise received C. Canceled checks
B: Vendors Invoices D. Receiving reports

3. The primary audit test to determine if accounts payable are valued properly is
A. Confirmation of accounts payable.
B. Vouching accounts payable to supporting documentation
C. An analytical procedure.
D. Verification that accounts payable was reported as a current liabilty in the balance sheet.

4. Which of the following procedures is least likely to be performed before the balance sheet
date?
A. Observation of inventory count.
B. Testing of internal control over cash.
C. Search for unrecorded Ilabilities.
D. Confirmation of recelvables.

5. An audit assistant found a purchase order for a regular supplier in the amount of P5,500. The
purchase order was dated after receipt of goods. The purchasing agent had forgotten to issue
the purchase order. Also, D disbursement of P450 for materials did not have a receiving report.
The assistant wanted to select additional purchase orders for investigation but was
unconcerned about lack of receiving report. The audit director should
A. Agree with the assistant pecause the amount of the purchase order exception was
tonsiderably larger than the receiving report exception
B. Agree with the assistant because the cash disbursement clerk had been assured by the
recelving clerk that the failure to fill out a report didn't happen very often.
C. Disagree with the assistant because two problems have an equal risk of loss associated with
them.
D. Disagree with the assistant because the lack of a receiving report has a greater risk of
loss associated with it.

6. When using confirmation to provide evidence about completeness assertion for accounts
payable, the appropriate population most likely is
A . Vendors with whom the entity has previously done business.
B. Amounts recorded in the accounts payable subsidlary ledger.
C . Payees of checks drawn in the month after the year end.
D. Invoices filed in the entity's open invoice file.

7. Which of the following is a substantive test that an auditor is most likely to perform to verify
the existence and valuation of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that pre-numbered purchase
orders are used and accounted for.
B. RecelvIng the client's mail, unopened, for a reasonable perlod of time after year end to
search for unrecorded vendor's invoices.
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and
recelving reports
D. Confirming accounts payable balances with known suppliers wha have zero balances.

8. Unrecorded liabilities are most likely to be found during the review of which of the following
documents?
A. Unpaid bills C. Bills of lading
B. Shipping records D. Unmatched sales Invoices

9. Which of the following audit procedures is best for identifying unrecorded trade accounts
payable?
A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine
whether the related payables apply to the prior period.
B. Investigating payables recorded just prior to and just subsequent to the balance sheet
date to determine whether they are supported by recelving reports.
C. Examining unusual relationships between monthly accounts payable balances and
recorded cash payments.
D. Reconciling vendors' statement to the file of receiving reports to identify items received just
prlor to the balance sheet date.

10. Which of the following procedures relating to the examination of accounts payable could the
auditor delegate entirely to the client's employees?
A.Test footings in the accounts payable ledger.
B.Reconcile unpald invoices to vendors' statements.
C. Prepare a schedule of accounts payable.
D. Mail confIrmations for selected account balances.

□ Shareholder's Equity (SHE)

1. An audit program for the audit of the retained earnings account should include a step that
requires verification of
A. Market value used to charge retained earnings to account for a 2-for-1 stock spllt
B. Approval of the adjustment to the beginning balance as a result of a write-down of ar
account receivable.
C. Authorization for both cash and stock dividends
D. Gain or loss resulting from disposition of treasury shares

2. In an examination of shareholders' equlty, an auditor is most concerned that

A. Capital stock transactions are properly authorized
B. Stock splits are capitalized at par or stated value on the divldend declaration date
C. Dividends during the year under audit were approved by the shareholders
D. Changes in the accounts are verified by a bank serving as a registrar and stock transfer
agent.

3. In an audit of a medium-sized manufacturing concern, which one of the following areas can
be expected to require the least amount of audit time?
A. Owner's equity
B. Assets
C. Revenue
D. Liabilities
4. When corporate client maintains its own stock records, the auditor primarly will rely upon
A. Confirmation with the company secretary of shares outstanding at year-end.
B. Review of the corporate minutes for data as to shares outstanding
C. Confirmation of the number of shares outstanding at year-end with the appropriate state
official.
D. Inspection of the stock book at year-end and accounting for all certificate numbers

5. With respect to treasury shares, the auditor should not object to which of the following?
A. Restrictions on retained earnings have not been met
B. Dividends have been paid on treasury shares.
C. The treasury share certificates have been destroyed
D. Treasury shares are recorded at cost rather than par value

6. A client company declared and paid a stock dividend. Its independent external auditor
should determine that
A. Shareholders received their additlonal shares by confirming year-end holdings with them.
B. The stock dividend was properly recorded by means of a memorandum entry only
C. The officers authorized he issuance of the stock dividend
D. Approprlate amounts were transferred from retained earnings to share capital and share
premium.

7. During an audit of an entity's shareholders' equity accounts, the auditor determines whether
there are restrictions on retained earnings resulting from loans, agreements, or law. This audit
procedure most likely is intended to verify management's assertion of
A. Existence
B. Completeness
C. Valuation
D. Presentation and disclosure

8. Which of the following statements is correct?

A. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is always required.
B. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is required when the company classifies treasury shares with other
assets.
C. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is not required if the treasury share is a deduction from shareholders'
equity.
D. When a company has treasury share certificates on hand, a year-end count of the certificates
by the auditor is required when the company had treasury share transactions during the year.
9. In performing tests concerning the granting of stock options, an auditor should
A. Confirm the transaction with the Securities and Exchange Commission.
B. Verify the existence of option holders in the entity's payroll records or stock ledgers.
C. Determine that sufficient treasury stock is available to cover any new stock issued.
D. Trace the authorization for the transaction to a vote of the board of directors.

10. The auditor does not expect the client to debit retained earnings for which of the following
transactions?
A. A 10% stock dividend
B. An appropriation of retained earnings for treasury shares.
C. A large stock dividend.
D. A four-for-one stock split.

□PPE

1. Which is the best audit procedure to obtain evidence to support the legal ownership of real
property?
A. Examination of corporate minutes and board resolutions with regard to approvals to acquire
real property.
B. Examination of closing documents, deeds and ownership documents registered and on file at
the register of deeds.
C. Discussion with corporate legal counsel concerning the acquisition of a specific piece of
property.
D. Confirmation with the title company that handled the escrow account and disbursement of
proceeds for the closing of the property.

2. When few property and equipment transactions occur during the year, the continuing auditor
usually obtains an understanding of internal control and performs
A.Tests of controls.
B. Analytical procedures to verify current year additions to property and equipment.
C. A thorough examination of the balances at the beginning of the year.
D. Extensive tests of current year property and equipment transactions.

3. Which of the following combinations of procedures is an auditor most likely to perform to

obtain evidence about fixed asset additions?
A. Inspecting documents and physically examining assets.
B.Recomputing calculations and obtaining written management representations.
C. Observing operating activities and comparing balances to prior period balances.
D. Confirming ownership and corroborating transactions through inquiries of client personnel.

4. In testing for unrecorded retirements of equipment, an auditor is most likely to

A. Select items of equipment from the accounting records and then locate them during the plant
tour.
B. Compare depreciation journal entries with similar prior-year entries in search of fully
depreciated equipment.
C. Inspect items of equipment observed during the plant tour and then trace them to the
equipment subsidiary ledger.
D. Scan the general journal for unusual equipment additions and excessive debits to repairs and
maintenance expense,

5. Determining that proper amounts of depreciation are expensed provides assurance about
management's assertions of valuation and allocation and
A. Presentation and disclosure
C. Rights and obligations
B. Completeness
D. Existence