1. Pertains to the policies and procedures that help ensure that management directives are carried out

A. Control environment

B. Rules and regulations

C. Control activities

D. Risk assessment

2. Refers policies and procedures designed to require authorization of transactions and to ensure accuracy and completeness of transaction processing.

A. Control activities

B. Information processing controls

C. Control environment

D. Segregation of duties

3. Involves assessing the design and operation of controls on a timely basis and taking corrective action as necessary.

A. Control environment

B. Risk assessment

C. Control activities

D. Monitoring

4. Management may initiate plans, programs, or actions to address specific risks or it may decide to accept a risk because of cost or other considerations. Risks can arise or change due to circumstances such as the following

A B C D

Significant rapid growth or expansion YESYESYESNO

of operations

Adoption of new accounting principles NOYESYESYES

Incorporating new technology YESYESNONO

Significant and rapid change in NOYESYESYES

information system

5. A process for identifying and responding to business risks and the results thereof.

A. Control environment

B. Risk assessment

C. Control activities

D. Monitoring

6. Refers to the overall attitude, awareness and actions of directors and management regarding the intimal control system and its importance in the entity.

A. Control environment

B. Control activities

C. Monitoring

D. Information system

7. Internal control is designed and implemented to address identified business risks that threaten the achievement of any of these objectives and these objectives are;

A B C D

Compliance with applicable laws and YESNOYESNO

regulations

Reliability of the entity's financial reporting NOYESYESNO

Effectiveness and efficiency of operations YESNOYESNO

8. Consists of infrastructure (physical and hardware components) software, people, procedures, and data.

A. Monitoring

B. Control activities

C. Information system

D. Risk assessment

9. Consist of all the policies and procedures adopted by the management of an entity to assist in achieving management's objective of ensuring, as far as practicable, the orderly and efficient conduct of its business, including adherence to management policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

A. Control activities

B. Control environment

C. Internal control

D. Business control

10. Which of the following factors are included in an entity's control environment?

A B C D

Organizational Structure YESYESYESNO

Assignment of authority and YESNOYESYES

responsibility

Integrity and ethical values YESYESYESNO Entity's risk management NONONOYES

Part II

11. What is the primary difference between fraud and errors in financial Statement reporting?

A. The materiality of the misstatement

B. The intent to deceive

C. The level of management involved

D. The type of transaction effected

12. Which of the following best represents fraudulent financial reporting?

A. The transfer agent Issue 40.000 shares of the company's stock to a friend without authorization by the board of directors.

B. The controller of the company inappropriately records January sales in

December so that year-end results will meet analysts' expectations.

C. The in-house attorney received payments from a Japanese businessman for negotiating the development of a new plant Batangas City.

D. The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization.

13. Which of the following creates an opportunity for fraud to be committed in an organization?

A. Management demands financial success.

B. Poor internal control.

C. Commitments tied to debt covenants.

D. Management is aggressive in its application of accounting rules

14. Which of the following is a common rationalization for fraudulent financial reporting?

A. This is one-time transaction and it will allow the company to get through the current financial crisis, but we'll never do it again.

B. We are only borrowing the money; we will pay it back next year.

C. Executives at other companies are getting paid more than we are, so we deserve the money.

D. The accounting rules don't make sense for our company, and they make our financial results look weaker than is necessary, so we have a good reason to record revenue using a non IFRS method

E. A and D.

Items 15-20: The fraud triangle asserts that the following three factors must exist for a person to commit fraud: Identify the fraud risk factor in each of the following situations:

15. The business has no cameras or security devices at its warehouse.

A. Opportunity

B. Pressure

C. Rationalization

D. None of these

16. Managers are expected to grow business or be fired.

A. Opportunity

B. Pressure

C. Rationalization

D. None of these

17. A worker sees other employees regularly take inventory for personal use

A. Opportunity

B. Pressure

C. Rationalization

D. None of these

18. No one matches the cash in the register to receipts when shifts end.

A. Opportunity

B. Pressure

C. Rationalization

D. None of these

19. Officers are expected to show rising income or risk dismissal.

A. Opportunity

B. Pressure

C. Rationalization

D. None of these

20. A worker feels that fellow employees are not honest.

A. Opportunity

B. Pressure

C. Rationalization

D. None of these

Part III

21. If preparation of a periodic scrap report is essential in order to maintain adequate control over the manufacturing process, the data for this report should be accumulated in the

A. Accounting department

B. Production department

C. Warehousing department

D. Budget department

22. Which of the following is not an internal control weakness related to factory equipment?

A. Checks issued in payment of acquisitions of equipment are no signed by the controller.

B. All acquisitions of factory equipment are required to be made by the department in need of the equipment.

C. Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired.

D. Proceeds from sales of fully depreciated equipment are credited other income.

23. With respect to an internal control measure that will ensure accountability for fixed asset retirements, management should implement controls that include

A. Continuous analysis of miscellaneous revenue to locate any cash proceeds from sale of plant assets.

B. Periodic inquiry of plant executives by internal auditors as whether any plant assets have been retired.

C. Continuous use of serially numbered retirement work orders.

D. Periodic observation of plant assets by the internal auditor

24. In a company whose materials and supplies include a great number of items, a fundamental deficiency in control requirements would be indicated if

A. a perpetual inventory master file is not maintained for items of small value.

B. the storekeeping function were to be combined with production and record keeping.

C. the cycle basis for physical inventory taking was to be used.

D. minor supply items were to be expensed when acquired.

25. For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is

A. forwarded to the accounting department.

B. retained in the purchasing department's files.

C. returned to the requisitioner.

D. forwarded to the receiving department.

26. Which of the following procedures would best detect the theft of valuable items from an inventory that consists of hundreds of different items selling for P10 to P100 and a few items selling for hundreds of pesos?

A. Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of the validity of the perpetuals.

B. Have an independent CPA firm prepare internal control report on the effectiveness of the administrative and accounting controls over inventory.

C. Have separate warehouse space tor the move valuable items with Sequentially numbered tags.

D. Require an authorized officer s signature on all requisitions for the more valuable items.

27. Errors and irregularities involving payroll have been reported to occur frequently and are largely undetected. The following are the errors that can occur in the payroll and personnel cycle except

A. Paying employees at the wrong date

B. Keeping terminated employees on the payroll

C. Charging payroll expense to the right account

D. Paying employees for more hours than they worked.

28. Fraudulent financial reporting involving sales typically results in overstated sales or understated sales return and allowances. The following are the methods that can be used to increase sales fraudulently, except

A. Recording deposits as sales

B. Recognized revenue that should be deferred

C. Following revenue recognition practices that are in accordance with PFRS

D. Recording in the current period sales that occurred in the succeeding period.

29. This technique is used to withholding cash receipts without recording them

A. Kiting

B. Lapping

C. Skimming

D. Window dressing

30. The following are some practices that will result to fraud in the acquisition and payment cycle except

A. Paying for fictitious purchases

B. Purchasing goods for personal use

C. Inappropriate assignment of labor cost to inventory

D. Receiving kickbacks

Part IV

31. PPE Long-lived assets include which of the following?

A. Tangible assets such as equipment.

B. Intangible assets such as patents.

C. Natural resources.

D. All of the above.

32. Which of the following statements is false regarding fraud risk factors related to long-lived assets?

A. A potential fraud scheme involves not removing sold assets from the books.

B. Because long-lived assets are typically an audit area of low risk, auditors do not need to perform brainstorming activities related to long-lived assets.

C. Management might use unreasonably long depreciable lives in an effort to reduce expenses.

D. None of the above statements is false. Inventory

33. Which of the following is not an activity associated with the acquisition and payment cycle?

A. Receive a customer purchase order.

B. Purchase of goods and services.

C. Receipt of, and accounting tor, gods and services.

D. Approval of items for payment.

34. Which of the following is an inherent risk relating to inventory?

A. Inventory is easily transportable.

B. Inventory may become obsolete because of technological advances even though there are no visible signs of wear.

C. Inventory is often returned by customers, so care must be taken to separately identity returned merchandise, check it for quality, and record it at net realizable value.

D. All of the above.

35. Which of the following is an example of fraud in the acquisition and payment cycle?

A. Theft of inventory by an employee.

B. Employee schemes involving fictitious vendors as means to transfer payments to themselves.

C. Executives recording fictious inventory or inappropriately recordin8 higher values for existing inventory.

D. All of the above.

36. Identify the possible inventory or cost of goods sold manipulation that might occur when inventory is sold.

A. Overstate returns

B. Overcount inventory

C. Not record cost of goods sold nor reduce inventory

D. Under-record purchases

37. These are financial instrument that derive their values from other financial instrument, underlying assets, or indexes.

A. Securities

B. Financial assets

C. Equity instrument

D. Derivatives

38. Inventories means

A. Goods on hand ready for sales

B. Goods in the process of production

C. Goods to be consumed directly or indirectly in production

D. All of the above

39. It is used to describe short -term obligations arising from the purchase of goods and services in the ordinary course of business.

A. Notes Payable

B. Account Receivable

C. Accounts Payable

D. Notes Receivable

40. It is used to describe a short-terms claims against customers arising from the sales of goods and services in the ordinary course of business

A. Notes Payable

B. Account Receivable

C. Accounts Payable

D. Notes Receivable

41. Which of the following can be used by organizations for obtaining financing?

A. Notes

B. Mortgages

C. Bonds

D. All of the above

42. Which of the following accounts would not typically be included in the audit of debt obligations?

A. Interest income

B. Interest expense

C. Bonds payable

D. Notes payable

43. Inherent risks related to debt obligations primarily include which of the following?

A. Debt is not properly authorized.

B. Interest expense is not properly accrued.

C. Debt covenants are not properly disclosed.

D. Debt is not appropriately classified as short or long term.

E. All of the above are inherent risks related to debt obligations.

44. Which of the following is not an inherent risk typically associated with the existence of dividends?

A. Dividends are recorded before being declared.

B. Dividends are not properly amortized.

C. Dividends have not been approved before being declared.

D. Dividends are recorded in the wrong period.

45. Which of the following would an auditor typically not perform as part of gaining an understanding of the client's control related to debt obligations?

A. Review the client's documentation of controls.

B. Recalculate interest expense.

C. Inquire of management about the process for reviewing compliance with debt covenants.

D. Review policies related to approval required for new debt.