iCARE ACCOUNTANCY REVIEW

AUDITING
Preboard Examinations

Instructions: Choose the best answer.

1. You are an audit staff engaged in the audit of the Shareholders’ Equity of ABC Corp.
You were asked by the Audit Manager, which among the assertions, is not addressed by
the procedures to be done?
a. Existence c. Valuation and Allocation
b. Rights and Obligation d. Presentation and Disclosure
2. Which of the following audit procedures addressed on the Audit of Shareholders’ Equity
can address the management’s assertion of validity of the shareholders’ equity?
a. Recalculation of Earnings per share.
b. Examination of the articles of incorporation.
c. Confirmation of equity balances with the Corporation’s in-house Stock Transfer
Agent.
d. Confirmation of equity balances with the Corporation’s Corporate Secretary.
3. When examining the shareholders’ equity account of an audit client, an auditor expects
all of the following Other Comprehensive Items to be non-recyclable to the profit or loss
except for which one?
a. Revaluation surplus
b. Gains or losses on the sale of FVTOCI investments.
c. Remeasurement gain or loss on retirement plans
d. Changes in the fair value attributed to the credit risk of financial liabilities
measured at fair value.
4. You are auditing XYZ Corp. as a continuing auditor for the calendar year-ended 31
December 2019. Based on your review of the prior year working papers, there were
adjustments proposed by the prior year audit team that were not accepted by the audit
client. You were able to confirm that these proposed adjustments were not material to the
financial statements as a whole. On this review, you were able to determine that the
opening amounts per trial balances differ from the opening amounts per audit. As such,
how will you document these findings?
a. Prepare a reconciliation to bridge the differences between the trial balance and the
audited balance based the audit on the audited balance.
b. Inquire from the prior year audit team the reason why differences arose.
c. Prepare an analytical procedure to determine the appropriateness of valuation on
balance sheet accounts.
d. Ignore the differences and continue the audit based on the amounts per trial
balance.
5. Which of the following procedures would you less likely do to obtain sufficient
appropriate evidence that the provisions and contingent liabilities of QT Joms Inc.
a. Examine Minutes of BOD meetings for discussions in relation to provisions and
contingencies.
b. Confirm with the Company’s legal counsel to identify the chances of winning
cases
c. Examine bank confirmation for possible disclosures on contingencies.
d. Obtain schedule of accruals and provisions. Check balances per schedule if it
matches with the control accounts.
Questions 6 to 10 are based on the situation below:
You were able to gather the following from the December 31, 2026 trail balance of De luna Inc.
in connection with your audit of the company:
Petty cash fund P 50,000
Cash on hand 1,500,000
Cash in bank – Metrobank current 4,000,000
Cash in bank – BDO Acct. No. 1 3,160,000

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 Cash in bank – BPO Acct. No. 2 (160,000)
Cash in bank – Coco bank savings 4,500,000
Time deposits – BPI 2,000,000

Audit notes:
1. The petty cash fund consisted of the following items as of December 31, 2026:
Currency and coins P 10,000
Employees’ vales 8,000
Empty envelope marked “collections for charity” with names attached 0
(amount that should be inside is P 6,000)
Unreplenished petty cash vouchers 6,500
Check drawn by Magnolia, payable to the petty cashier 20,000
Unused postage stamps 1,500
TOTAL P 46,000

2. Cash on hand represents undeposited collections as of December 31, 2026 and includes the
following items:
a. Customer’s check for P 160,000 returned by bank on December 26, 2026 due to
insufficient fund but subsequently redeposited and cleared by the bank on December
29, 2026.
b. Customer’s check for P 80,000 dated December 31, 2026, received on December 29,
2026.
c. A customer check for P 90,000 dated June 1, 2026 received on the same date and yet
to be deposited.
d. Postal money orders received from customers, P 100,000

3. Included among the checks drawn by De luna against the Metrobank current account and
recorded in December 2026 are the following:
a. Check written on December 29, 2026 dated December 30, 2026, delivered to payee on
December 31, 2026, P 160,000.
b. Check written and dated December 29, 2026 and delivered to payee on December 29,
2027, P 200,000.

4. The credit balance in the BPO Current account no. 2 represents checks drawn in excess of
the deposit balance. These checks were still outstanding at December 31, 2026.

5. The savings account deposit in Coco Bank has been set by the board of directors for
acquisition of new computers. This account is expected to be disbursed in the next 3 months
from the balance sheet date.

6. The time deposit with BPI was purchased on November 1, 2026 and shall mature on
February 28, 2027.

Determine the audited balances of the following:

6. Petty Cash fund
a. 30,000 c. 10,000
b. 36,000 d. 24,000

7. Petty Cash shortage/overage

a. 4,000 short c. 2,000 over
b. 10,000 short d. 500 over

8. Cash on hand
a. 1,070,000 c. 1,310,000
b. 1,170,000 d. 1,410,000

9. Cash in bank – Metrobank current

a. 4,000,000 c. 4,200,000
b. 4,160,000 d. 4,360,000

10. Cash and cash equivalents to be reported in the 2026 balance sheet

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 a. 8,594,000 c. 10,560,000
b. 8,566,000 d. 15,060,000

11. The main concern of an auditor who is testing the audit client’s contingent liabilities is?
a. Accrual of Contingent Liabilities.
b. Disclosure of the nature, status and possible impact of contingencies to the entity.
c. If the contingencies were properly accounted for.
d. The chances of winning the cases.
12. You were assigned to audit the provisions of an audit client. Whom will you acquire
primary information regarding provisions and contingencies?
a. Legal Counsel
b. Management
c. Those charged with governance
d. Supreme Court
13. The following except one will be requested for your testing of the Accounts Payable of
QT Joms Inc.?:
a. AP Journal Voucher
b. Vendor’s Invoice
c. Open purchase orders
d. Receiving report
14. One of the basic procedures that an auditor should do is to test the completeness of
liabilities; hence, the need for search for unrecorded liabilities. All except which one is a
procedure to be conducted in testing a search for unrecorded liabilities?
a. Test for all paid invoices for a short period following the balance sheet date.
b. Test for all unpaid invoices for a short period following the balance sheet date.
c. Test to determine if the listed open purchase order is validly tagged as open.
d. Analytical procedures to test the balances of liabilities at year-end and after the
year-end.
15. When testing bonds payable, the auditor would normally check the reasonableness of the
interest expense recorded by:
a. Determining the nominal rate and effective rate and then reperforming the
preparation of the amortization table.
b. Recompute the interest expense using the effective interest rate.
c. Inquire of management if there were any retirements or treasury bonds.
d. Confirm from the bondholders how much was credited to them regarding the
interest on their bond holdings.
Questions 16 to 20 are based on the following information:
An analysis of incomplete records of Rain Corporation produced the following information
applicable to 2024:

Account Increases Account Decreases

Cash P 4,200,000 Inventory P 1,000,000
Accounts receivable 1,400,000 Equipment 100,000
Accounts payable 400,000 Notes receivable 600,000
Prepaid insurance 200,000 Accrued Salaries payable 300,000

Summary of cash transactions were as follows:

RECEIPTS/INFLOWS:
Cash sales P 3,000,000
Collections on accounts receivable 30,000,000
Collections on notes receivable 2,400,000
Interest in notes receivable 200,000
Purchase returns and allowances 500,000

DISBURSEMENTS/OUTFLOWS:
Cash purchases P 1,000,000
Payments on accounts payable 16,500,000
Sales returns and allowances 400,000

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 Insurance 700,000
Salaries 10,000,000
Equipment 800,000
Other expenses 1,500,000
Dividends 1,000,000

Additional information:
1. Total purchase returns and allowances amounted to P 800,000.
2. Total sales returns and allowances amounted to P 1,200,000.

Required: Determine the audited balances of the following:

16. Gross Sales
a. 35,800,000 c. 36,200,000
b. 37,400,000 d. 37,000,000

17. Gross purchases

a. 17,900,000 c. 17,400,000
b. 18,200,000 d. 17,000,000

18. Cost of Sales

a. 18,000,000 c. 18,700,000
b. 18,400,000 d. 18,900,000

19. Depreciation expense

a. 100,000 c. 900,000
b. 800,000 d. 1,000,000

20. Net income

a. 5,000,000 c. 5,200,000
b. 5,150,000 d. 5,900,000

21. You were engaged by RAIN, Inc. to audit its financial statements for the calendar year-
ended 31 December 2019. When you were testing RAIN’s expenses, you were able to
determine that there were expenses amounting to PHP200,000 in 2018 were recorded in
2019. There are no other misstatements noted for the expenses. Overall materiality was
set at PHP20M, haircut is 25% in considering performance materiality and specific
materiality allocated to expenses is 10% of performance materiality. Based on the
foregoing, what will be your conclusion for the misstatements that were discovered?
a. Propose an adjusting journal entry, a debit to retained earnings and a credit to
expenses to correct the error.
b. The misstatement is an under PAS 8; hence, regardless of materiality the financial
statements must be restated.
c. Propose an adjusting journal entry to the management. If the latter refuses to
accept such adjustment, consider the possible impact of the misstatement to the
overall materiality.
d. None of the choices.
22. You were examining the intangible assets of KDM, Inc. and you where examining if the
capitalized intangible assets of the company. Which one of the following will not be
considered?
a. Technical Feasibility
b. Availability of funds
c. Measurable
d. Intention to buy and sell the product
23. Consider the following statements and choose the best answer:
I. When auditing intangibles, the auditor may ignore the residual value in the
recomputation of the amortization expense.
II. When examining the valuation of intangibles, one of the documents that must be
examined is the canceled check.

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 III. The auditor must ensure that goodwill is amortized when the audit client is a medium-
sized entity not using the full IFRS.
a. Only one statement is correct.
b. Only one statement is wrong.
c. All statements are correct.
d. All statements are wrong.
24. The following are part of your general procedures in the audit of property, plant and
equipment except which one?
a. Obtain the PPE lapsing schedule and ensure that the balances per lapsing matches
with the trial balance.
b. Obtain the accounting policy of PPEs and examine the Company’s policy as to
the recognition, measurement, disclosure and disposal of the fixed assets.
c. Obtain Minutes of BOD meetings and check if there are items involving
acquisition or disposal of fixed assets including any liens thereto.
d. Recalculate depreciation of all PPEs.
25. Generally, when testing depreciation expense, the auditor performs substantive analytics
rather than extensive vouching of sampled PPEs. Which of the following may be the best
reason for such?
a. It is more efficient to conduct substantive analytics for depreciation than to do
extensive vouching.
b. The computation of depreciation is relatively straightforward and may be
recalculated by the audit staff.
c. The more effective procedure for the test of Depreciation is substantive analytics
than extensive vouching of sampled PPEs.
d. The computation of depreciation is relatively easy and may be done by a non-
CPA staff.
Questions 26 to 29 are based on the following information:
Elaine Square has the following selected accounts in its shareholders’ equity section as of
December 31, 2023:
Preference shares, P 100 par, 10% cumulative P 10,000,000
Ordinary shares, P 20 par, 1,000,000 shares authorized 14,000,000
Share premium 8,000,000
Retained Earnings 30,000,000

There were no dividends in arrears on the preference shares. During 2024, the following
transactions occurred:
a. The board of directors declared a cash dividend totaling to P 2,800,000 to be paid to preference
and ordinary shareholders. Later, a share dividend of 100,000 ordinary shares is declared on
ordinary shares. The market value of the ordinary shares is P 68 per share on the date the share
dividends were declared.
b. Sometime after the above dividends were declared and settled, the board of directors declared
as property dividends of one share of its investment in Junelle Corp. stocks being held by the
company as trading securities for every two ordinary shares outstanding. Junelle Corp. stocks
were originally purchased by the company at P 12 per share and have a carrying value based
on their fair value as per the last remeasurement (balance sheet) date, at P 20 per share. Junelle
Corp. shares were selling at P 24 when the property dividends were declared and were selling
at P 25 when the property dividends were settled. The company had a total of P 500,000 shares
of Junelle Corp shares.
c. At the end of 2024, the board declares a 4 for 1 share split. With the split, the number of ordinary
shares authorized to be issued increased to 4,000,000. At the date of the share split, the market
value of ordinary shares is P 75 per share.
d. Net earnings during 2024 totaled P 6,000,000.

Required:
26. What is the adjusted balance of the Company’s Retained earnings account at the end of
the year?
a. 26,400,000 c. 18,400,000
b. 21,600,000 d. 16,400,000

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27. What is the balance of the ordinary shares account as of December 31, 2024?
a. 14,000,000 c. 18,000,000
b. 16,000,000 d. 20,800,000

28. What is the balance of the share premium account as of December 31, 2024?
a. 8,000,000 c. 12,800,000
b. 10,800,000 d. 14,800,000

29. What is the adjusted balance of the Company’s Shareholders’ equity account at the end
of the year?
a. 54,400,000 c. 57,200,000
b. 55,200,000 d. 60,400,000

Questions 30 to 34 are based on the following information:

Soriano Corp.’s accounts receivable subsidiary ledger shows the following information:
Account Balance Invoice
Customer
December 31, 2024 Date Amount
12/06/24 P 14,000
Kaya, Inc. P 35,180
11/29/24 21,180
09/27/24 12,000
Nyo Co. 20,920
08/20/24 8,920
12/08/24 20,000
Yan Corp. 30,600
10/25/24 10,600
11/17/24 23,140
Kayo Co. 45,140
10/09/24 22,000
12/12/24 19,200
Pa, Inc. 31,600
12/02/24 12,400
Ba, Corp. 17,400 09/12/24 17,400

The estimated bad debts rates below are based on Soriano Corp.’s receivable collection experience.
Age of Accounts Rate
0 to 30 days 1%
31 to 60 days 1.5%
61 to 90 days 3%
91 to 120 days 10%
Over 120 days 50%

The allowance for bad debts had a debit balance of P 5,500 on December 31, 2024, before
adjustment.
Based on the above and the results of your audit, answer the following:
30. The accounts receivable under “61 to 90 days” category should be
a. 32,600 c. 44,600
b. 44,320 d. 42,000

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 31. The accounts receivable under “91 to 120 days” category should be
a. 38,320 c. 29,400
b. 40,000 d. 12,000

32. The allowance for bad debts to be reported in the statement of financial position at
December 31, 2024 is
a. 9,699 c. 4,199
b. 15,199 d. 5,500

33. What is the net realizable value of accounts receivable at December 31, 2024?
a. 165,641 c. 196,039
b. 171,241 d. 186,340

34. How much is the bad debt expense during 2024?

a. 15,199 c. 4,199
b. 5,500 d. 9,699

35. Among the choices, which is not a document that will be obtained by an auditor when
testing additions of PPEs.
a. Vendor’s invoice c. Work orders of repaired fixed assets
b. Receiving Report d. Minutes of BOD meetings
36. Which engagement(s) is(are) required to have a written report regarding another party’s
assertion?
Audit Attestation Assurance
Engagement Engagement Engagement
a. Yes Yes Yes
b. Yes Yes No
c. Yes No No
d. No Yes Yes

37. Which of the following is not an example of the application of professional skepticism?
a. Designing additional auditing procedures to obtain more reliable evidence in support of a
particular financial statement assertion.
b. Obtaining corroboration of management's explanations through consultation with a
specialist.
c. Inquiring of prior year engagement personnel regarding their assessment of management's
honesty and integrity.
d. Using third party confirmations to provide support for management's representations.

38. Which of the following statements concerning audit evidence is true?

a. To be appropriate, audit evidence should be either persuasive or relevant, but need not be
reliable.
b. The measure of the quantity and quality of audit evidence lies in the auditor’s judgment.
c. The difficulty and expense of obtaining audit evidence concerning an account balance is a
valid basis for omitting the test.
d. A client’s accounting records can be sufficient audit evidence to support the financial
statements.

39. Which of the following factors most likely would cause an auditor not to accept a new audit
engagement?
a. An inadequate understanding of the entity’s internal control structure.
b. The close proximity to the end of the entity’s fiscal year.
c. Concluding that the entity’s management probably lacks integrity.
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 d. An inability to perform preliminary analytical procedures before assessing control risk.

40. Which of the following is least likely to be included in the auditor’s engagement letter?
a. Details about the preliminary audit strategy.
b. Overview of the objectives of the engagement.
c. Statement that management is responsible for the financial statements.
d. Description of the level of assurance obtained when conducting the audit.

41. In establishing the overall audit strategy, the auditor is required to do but which of the
following?
a. Identify the characteristics of the engagement.
b. Design further audit procedures that are responsive to risks of material misstatement.
c. Consider the results of preliminary engagement activities and, where applicable, whether
knowledge gained on other engagements performed by the engagement partner for the
entity is relevant.
d. Ascertain the nature, timing and extent of resources necessary to perform the engagement.
42. As it relates to an audit, materiality is
a. not taken into consideration.
b. related only to the sufficiency of procedures performed.
c. based upon audit fees.
d. determined based upon the importance to a user of the financial statements.

43. Which of the following statements is correct concerning materiality in a financial statement
audit?
a. Analytical procedures performed during an audit's review stage usually decrease
materiality levels.
b. If the materiality amount used in evaluating audit findings increases from the amount used
in planning, the auditor should apply additional substantive tests.
c. The auditor's materiality judgments generally involve quantitative, but not qualitative,
considerations.
d. Materiality levels are generally considered in terms of the smallest aggregate level of
misstatement that could be considered material to any one of the financial statements.

44. An auditor obtains knowledge about a new client's business and its industry in order to
a. Make constructive suggestions concerning improvements to the client's internal control
structure
b. Develop an attitude of professional skepticism concerning management's financial
statement assertions
c. Evaluate whether the aggregation of known misstatements causes the financial statements
taken as a whole to be materially misstated
d. Understand the events and transactions that may have an effect on the client's financial
statements

45. Which of the following is not considered to be an analytical procedure?

a. Comparisons of financial statement amounts with source documents.
b. Comparisons of financial statement amounts with nonfinancial data.
c. Comparisons of financial statement amounts with budgeted amounts.
d. Comparisons of financial statement amounts with comparable prior year amounts.

46. Which of the following factors would most likely influence an auditor's consideration of the
reliability of data when performing analytical procedures?
a. Whether the data were developed in a computerized or a manual accounting system.
b. Whether the data were prepared on the cash basis or in conformity with GAAP.
c. Whether the data were developed under a system with adequate controls.
d. Whether the data were processed in an online system or a batch entry system.

47. Which of the following is not considered one of the five major components of internal control?
a. Risk assessment.
b. Segregation of duties.

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 c. Control activities.
d. Monitoring.

48. Which of the following is not one of the factors that make up the control environment?
a. accounting personnel
b. board of directors and audit committee
c. organizational structure
d. human resource policies and practices

49. Which of the following is true about the auditors' consideration of internal control in a financial
statement audit?
a. The auditors must assess control risk at a level lower than the maximum.
b. The auditors must prepare a flowchart description of internal control for their working
papers.
c. The auditors must obtain an understanding of the steps in processing major types of
transactions.
d. The auditors must perform tests of controls.

50. Which one of the following is not an auditor’s concern about a key authorization point in the
sales/collection cycle?
a. Credit must be authorized before the sale.
b. Goods must be shipped after the authorization.
c. Prices must be authorized.
d. The receiving room must have authorization before releasing items to inventory control.

51. For effective internal control, which of the following functions should not be assigned to the
company's accounting department?
a. Reconciling accounting records with existing assets.
b. Recording financial transactions.
c. Signing payroll checks.
d. Preparing financial reports.

52. For effective internal control, the accounts payable department generally should
a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
b. Ascertain that each requisition is approved as to price, quantity, and quality by an
authorized employee.
c. Obliterate the quantity ordered on the receiving department copy of the purchase order.
d. Establish the agreement of the vendor's invoice with the receiving report and purchase
order.

53. One accounting issue that does not require management to use significant judgments is:
a. the allowance for doubtful accounts.
b. the useful life of equipment for tax purposes.
c. obsolete inventory.
d. the liability for warranty payments.

54. An auditor who audits a business cycle that has low inherent risk should:
a. increase the amount of audit evidence gathered.
b. assign more experienced staff to that area.
c. increase the tolerable misstatement for the area.
d. expand planning procedures.

55. When an auditor encounters a scenario wherein the client entity’s control environment is
ineffective, which of the following is an inappropriate response?
a. Assigning more experienced audit staff.
b. Conducting more audit procedures at an interim date.
c. Obtaining more extensive audit evidence from substantive procedures.

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 d. Making changes to the nature, timing, or extent of audit procedures to be performed.

56. Auditors who prefer statistical sampling to non-statistical sampling may do so because
statistical sampling helps the auditor
a. Measure the sufficiency of the evidential matter obtained.
b. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable error to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to non-sampling risk.

57. In testing accounts receivable, an auditor sends out positive confirmation requests to 100
randomly selected customers. A customer returns the confirmation indicating that the balance
is correct when, in fact, the balance is overstated. This is an example of:
a. Projected misstatement.
b. Sampling error.
c. Standard error.
d. Nonsampling error.

58. Which of the following statements correctly describes the auditor’s responsibilities in
accordance with PSA 240 The auditor's responsibilities relating to fraud in an audit of financial
statements?
a. The auditor is responsible for the prevention and detection of fraud and error
b. The auditor is not responsible for the prevention of fraud and error but is responsible for
detection
c. The auditor is responsible for obtaining reasonable assurance that the financial statements
are free from material misstatement whether caused by fraud or error
d. The auditor is responsible for detecting all errors and should attempt to detect fraud where
information comes to light as a result of standard audit procedures

59. The most common technique used by management to misstate financial information, and is
always presumed to exist under PSA 315, is:
a. overstatement of expenses.
b. improper revenue recognition.
c. understatement of liabilities.
d. understatement of assets.

60. You are an audit senior of YHT & Co and have worked on the external audit of BJM Co (BJM),
an unlisted company, since your firm was appointed external auditor two years ago. BJM owns
a chain of nine restaurants and is a successful company. BJM has always been subject to
national hygiene regulations, especially in relation to the food preparation process. Non-
compliance can result in a large fine or closure of the restaurant concerned. Which of the
following statements best describes YHT & Co’s responsibility regarding BJM’s compliance
with hygiene regulations, in line with PSA 250 Consideration of laws and regulations in an
audit of financial statements?
a. YHT & Co should actively prevent and detect non-compliance with the regulations.
b. YHT & Co should perform specific audit procedures to identify possible non-compliance.
c. YHT & Co should obtain sufficient appropriate audit evidence about BJM's compliance
with the regulations as they have a direct effect on the financial statements.
d. YHT & Co does not have any responsibility as the hygiene regulations do not have a direct
effect on the financial statements.

61. An auditor who discovers that client employees have committed an illegal act that has a
material effect on the client's financial statements most likely would withdraw from the
engagement if:
a. The illegal act is a violation of generally accepted accounting principles.
b. The client does not take the remedial action that the auditor considers necessary.
c. The illegal act was committed during a prior year that was not audited.
d. The auditor has already assessed control risk at a high level.

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62. In assessing the objectivity of internal auditors, an independent auditor should:
a. Evaluate the quality control program in effect for the internal auditors.
b. Examine documentary evidence of the work performed by the internal auditors.
c. Test a sample of the transactions and balances that the internal auditors examined.
d. Determine the organizational level to which the internal auditors report.

63. The auditor being able to use computer-assisted audit techniques to screen every cash
disbursement and identify related-party transactions relates to the effect of electronic data
processing on:
a. the timing of audit tests.
b. the extent of audit tests.
c. the nature of audit tests.
d. audit staffing.

64. Which of the following would be least likely to diminish the validity of evidence obtained
through confirmation of accounts receivable?
a. The confirmations are sent on the client's letterhead.
b. The confirmations are mailed to customers by the internal auditors.
c. The client's mailroom personnel closely monitor and inspect confirmations during mailing.
d. The return address on the envelope used to send the confirmation request is that of the
client.

65. Tracing recorded sales transactions in the sales journal to the shipping documents (bills of
lading) provides evidence about the:
a. Completeness of recording of sales transactions.
b. Occurrence of sales transactions.
c. Billing of all sales transactions.
d. Presentation of payables.

66. Which of the following statements is not true regarding the auditor's responsibility for
subsequent events?
a. The auditor has an active responsibility to make continuing inquiries between the date of
the auditor's report and the date on which the report is submitted.
b. The auditor has an active responsibility to make continuing inquiries between the date of
the financial statements and the date of the auditor's report.
c. The auditor has an active responsibility to make continuing inquiries between the date of
the financial statements and the date on which sufficient appropriate audit evidence has
been obtained.
d. The auditor has no active responsibility to make continuing inquiries after the date of the
auditor's report.

67. Which of the following is most likely considered a judgmental misstatement?

a. Error in recording near year-end inventory purchases
b. Prematurely recorded sales
c. Inadequate allowance for loans impairment
d. Failure to accrue for salaries liability

68. Which TWO of the following statements correctly describe the auditor’s responsibility in
relation to misstatements?
(1) The auditor must accumulate misstatements over the course of the audit unless they are
immaterial.
(2) As part of their completion procedures, auditors shall consider whether the aggregate of
uncorrected misstatements in the financial statements is material
(3) In deciding whether the uncorrected misstatements are material, the auditor shall consider
the size and nature of the misstatements

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 (4) The auditor is required to consider misstatements relating to transactions and account
balances, but not misstatements related to qualitative disclosures
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 2 and 4

69. In the performance of an audit of financial statements, which of the following matters the
auditor does not need to communicate with those charged with governance?
a. Auditor’s responsibilities in relation to the financial statement audit
b. Details of planned scope and timing of the audit
c. Significant audit findings
d. Auditor independence

70. An auditor has been asked to report on the balance sheet of Kane Company but not on the other
basic financial statements. The auditor will have access to all information underlying the basic
financial statements. Under these circumstances, the auditor:
a. May accept the engagement because such engagements merely involve limited reporting
objectives.
b. May accept the engagement but should disclaim an opinion because of an inability to apply
the procedures considered necessary.
c. Should refuse the engagement because there is a client-imposed scope limitation.
d. Should refuse the engagement in accordance with generally accepted auditing standards.

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