Please answer

1. Audits of financial statements are designed to obtain reasonable assurance of detecting material misstatements due to

a. b. c. d.

Errors Yes Yes Yes No

Fraudulent financial reporting Yes Yes No Yes

Misappropriation of assets Yes No Yes No

Direct-effect illegal acts Yes No Yes No

2. How will the results of the auditor's assessment of fraud risk factors further affect the planned audit procedures?

a. Audit procedures and fraud assessment do not relate.

b. The assessment may require a re-audit of previous periods.

c. By the assignment of qualified audit staff to risky areas of the engagement.

d. Management will be called upon to assist in coordinating audit procedures.

3. An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if

a. The payments violated the client's policies regarding the prevention of illegal acts.

b. The client receives financial assistance from a federal government agency.

c. Documentation that is necessary to prove that the bribes were paid does not exist.

d. Management fails to take the appropriate remedial action and reliance on management's representation becomes doubtful.

4. Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets?

a. A lack of independent checks.

b. A high turnover of senior management.

c. A strained relationship between management and the predecessor auditor.

d. An inability to generate cash flow from operations.

5. If an illegal act is discovered during the audit of a publicly held company, the auditor should

a. Notify the regulatory authorities.

b. Determine who was responsible for the act.

c. Modify the extent of auditing procedures.

d. Report the act to high-level personnel within the client's organization.

6. The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatement resulting from fraud, except

a. Unwillingness by management to permit the auditor to meet privately with those charged with governance.

b. Accounting policies that appear to be consistent with industry norms.

c. Frequent changes in accounting estimates that do not appear to result from changed circumstances.

d. Tolerance of violations of the entity's Code of Conduct

7. Brainstorming about the manner in which fraud may be committed should include all of the following except

a. Consider factors that might affect management motivation to misstate the financial statements

b. Consider weaknesses in internal control that would allow a fraud to take place or management override of controls

c. Consider the materiality of the individual account balances for substantive testing

d. Consider factors that may enable an individual capable of committing a fraud to rationalize perpetrating it

8. In evaluating the effect of fraud upon the audit procedures the auditor should consider

a. The type of fraud that may occur.

b. The potential significance and likelihood of occurrence of fraud.

c. The pervasiveness of fraud detected.

d. All of the above.

9. Which of the following would the auditor likely to do when the application of planned audit procedures indicates the possible existence of fraud or error?

a. The auditor should resign from the engagement in order to avoid legal responsibility.

b. The auditor should discuss the matter with the person believed to be involved with the irregularities.

c. The auditor should refer the fraud, actual or suspected to the internal auditor.

d. The auditor should consider the potential effect on the financial statements and other aspects of the audit, particularly, the reliability of management representations.

10. Which of the following is not an example of a type of defalcation?

a. A warehouse employee takes home two units of electronic entertainment inventory each week without authorization.

b. The president of the company utilizes the organization's cash to add a floor to her 15,000 square foot house.

c. The chief financial officer of the company falsely adds P20 million to the accounts receivable and revenue accounts.

d. The treasurer of the company makes an unauthorized wire transfer from the organization's bank to a personal account in Grand Cayman.

11. Bugis Corp. acquired a machine on January 1, 2012.

Details of the machine at December 31, 2019 are

given below:

Component

Cost

Depreciation

basis

Engine P170,000,000 Useful life of

40,000 hours

Outer casings 510,000,000 25 years

straight line

Other

components

255,000,000

12 years

straight line

P765,000,000

During the year 2020, the following events took place:

a) Engine, which had run for 30,000 hours till date

developed serious snags. It was replaced by a

better engine with a cost of P238 million and

estimated life of 50,000 hours. The new engine

was used for 5,000 hours during the year.

b) Polishing and painting was done to the outer

casings at a cost of P1.3 million.

c) Other components were upgraded at a cost of

P102 million. The remaining life of the other

components is 5 years.

Compute the total depreciation for the year 2020,

assume that all the work mentioned above was

completed at the beginning of 2020.

a. P85,850,000 c. P90,950,000

b. P81,676,470 d. P81,600,000