SVFC BS Accountancy - 4th Set Online Resources SY20-19 1st Semester PDF

SAINT VINCENT DE FERRER COLLEGE AUGUST 2019
BS ACCOUNTANCY (1st semester SY 2020-2019) Part 4

ONLINE RESOURCES by Prof. Hector Santos Jr., CPA, MBA
AUDITING THEORY
I. Topic(s):
Audit Planning, Understanding the Client/Entity, Client Acceptance, Assessing the Risk
II. Learning Objective(s):

1 Describe the major steps in the audit process.
2 Identify the factors that auditors consider in accepting new clients.
3 Explain the auditors' responsibilities when planning an audit.
4 Describe the nature of the risk assessment procedures that auditors use to obtain an
understanding of the client and its environment.
5 Describe the manner in which an audit is affected by the auditors' assessment of audit risk and
materiality.
6 Describe how the auditors address fraud risk.
7 Discuss how the auditors design further audit procedures in response to the assessed risks of
material misstatement.
8 Distinguish between the systems and the substantive procedures portions of the audit program.
III. Rundown
POINTS TO REMEMBER
Terms of Audit Engagements

The auditor and the client should agree on the terms of the engagement. The agreed terms would
need to be recorded in an audit engagement letter or other suitable form of contract.
It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably
before the commencement of the engagement, to help in avoiding misunderstandings with respect
to the engagement.
The engagement letter documents and confirms:
1. the auditor’s acceptance of the appointment;
2. the objective and scope of the audit;
3. the extent of the auditor’s responsibilities to the client; and
4. the form of any reports.
Principal Contents
The form and content of audit engagement letters may vary for each client, but they would
generally include reference to:
• The objective of the audit of financial statements.
• Management’s responsibility for the financial statements.
• The scope of the audit, including reference to applicable legislation, regulations, or
pronouncements of professional bodies to which the auditor adheres.
• The form of any reports or other communication of results of the engagement.
• The fact that because of the test nature and other inherent limitations of an audit, together
with the inherent limitations of any accounting and internal control system, there is an
unavoidable risk that even some material misstatement may remain undiscovered.
• Unrestricted access to whatever records, documentation and other information requested
in connection with the audit.
The auditor may also wish to include in the letter:

• Arrangements regarding the planning of the audit.
• Expectation of receiving from management written confirmation concerning
representations made in connection with the audit.
• Request for the client to confirm the terms of the engagement by acknowledging receipt
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Copyright of Prof. Hector U. Santos Jr., CPA, MBA
This online resource is intended solely to whom it is authorized to receive it. If you are not the intended recipient you are hereby notified that
any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be
unlawful.
of the engagement letter.

• Description of any other letters or reports the auditor expects to issue to the client.
• Basis on which fees are computed and any billing arrangements.
When relevant, the following points could also be made:

• Arrangements concerning the involvement of other auditors and experts in some aspects
of the audit.
• Arrangements concerning the involvement of internal auditors and other client staff.
• Arrangements to be made with the predecessor auditor, if any, in the case of an initial
audit.
• Any restriction of the auditor’s liability when such possibility exists.
• A reference to any further agreements between the auditor and the client.
Audits of Components
When the auditor of a parent entity is also the auditor of its subsidiary, branch or division
(component), the factors that influence the decision whether to send a separate engagement letter
to the component include:
• Who appoints the auditor of the component.
• Whether a separate audit report is to be issued on the component.
• Legal requirements.
• The extent of any work performed by other auditors.
• Degree of ownership by parent.
• Degree of independence of the component’s management.
Recurring Audits
On recurring audits, the auditor should consider whether circumstances require the terms of the
engagement to be revised and whether there is a need to remind the client of the existing terms of the
engagement.
The auditor may decide not to send a new engagement letter each period. However, the following factors
may make it appropriate to send a new letter:
• Any indication that the client misunderstands the objective and scope of the audit.
• Any revised or special terms of the engagement.
• A recent change of senior management, board of directors or ownership.
• A significant change in nature or size of the client’s business.
• Legal requirements.
Acceptance of a Change in Engagement

A request from the client for the auditor to change the engagement may result from:
1. a change in circumstances affecting the need for the service;
2. a misunderstanding as to the nature of an audit or related service originally requested; or
3. a restriction on the scope of the engagement, whether imposed by management or caused
by circumstances.
Items 1 and 2 would ordinarily be considered a reasonable basis for requesting a change in the
engagement. In contrast a change would not be considered reasonable if it appeared that the
change relates to information that is incorrect, incomplete or otherwise unsatisfactory.
If the auditor agreed to a change of the engagement:

• the auditor and the client should agree on the new terms;
• the report issued would be that appropriate for the revised terms of engagement; and
• in order to avoid confusing the reader, the report would not include reference to:
(a) The original engagement; or
(b) Any procedures that may have been performed in the original engagement, except
where the engagement is changed to an engagement to undertake agreed-upon
procedures and thus reference to the procedures performed is a normal part of the
report.
If the auditor is unable to agree to a change of engagement and is not permitted to continue the
original agreement:
• the auditor should withdraw; and
• consider whether there is any obligation, either contractual or otherwise, to report to other
parties, such as the board of directors or shareholders, the circumstances necessitating the withdrawal.
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Appointment of the Independent Auditor
Early appointment of the independent auditor has many advantages to both the auditor and his client.
Early appointment enables the auditor to plan his work so that it may be done expeditiously and to
determine the extent to which it can be done before the balance sheet date.
Although early appointment is preferable, an independent auditor may accept an engagement near or after
the close of the fiscal year. In such instances, before accepting the engagement, he should ascertain
whether circumstances are likely to permit an adequate audit and expression of an unqualified opinion
and, if they will not, he should discuss with the client the possible necessity for a qualified opinion or
disclaimer of opinion.
Planning
The first standard of fieldwork (performance standards) states that:
”The work is to be adequately planned and assistants, if any, are to be properly supervised.”
The auditor should plan the audit work so that the audit will be performed in an effective manner.
“Planning” means developing a general strategy and a detailed approach for the expected nature, timing
and extent of the audit. The auditor plans to perform the audit in an efficient and timely manner.
Importance of Adequate Planning

Adequate planning of the audit work helps to ensure that:
1) Appropriate attention is devoted to important areas of the audit;
2) Potential problems are identified; and
3) The work is completed expeditiously.
Planning also assists in proper:

1) Assignment of work to assistants; and
2) Coordination of work done by other auditors and experts.
Extent of Planning
The extent of planning will vary according to the following:
1) Size of the entity;
2) Complexity of the audit; and
3) Auditor’s experience with the entity and knowledge of the business.
The Overall Audit Plan
The auditor should develop and document an overall audit plan describing the expected scope and
conduct of the audit.
While the record of the overall audit plan will need to be sufficiently detailed to guide the development of
the audit program, its precise form and content will vary depending on the following:
1) Size of the entity;
2) Complexity of the audit; and
3) Specific methodology and technology used by the auditor.
Matters to be considered by the auditor in developing the overall audit plan include:
Knowledge of the Business
 General economic factors and industry conditions affecting the entity’s business.
 Important characteristics of the entity, its business, its financial performance and its reporting
requirements including changes since the date of the prior audit.
 The general level of competence of management.
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Understanding the Accounting and Internal Control Systems
 The accounting policies adopted by the entity and changes in those policies.
 The effect of new accounting or auditing pronouncements.
 The auditor’s cumulative knowledge of the accounting and internal control systems and the relative
emphasis expected to be placed on tests of control and substantive procedures.
Risk and Materiality
 The expected assessments of inherent and control risks and the identification of significant audit
areas.
 The setting of materiality levels for audit purposes.
 The possibility of material misstatement, including the experience of past periods, or fraud.
 The identification of complex accounting areas including those involving accounting estimates.
Nature, Timing and Extent of Procedures
 Possible change of emphasis on specific audit areas.

 The effect of information technology on the audit.
 The work of internal auditing and its expected effect on external audit procedures.
Coordination, Direction, Supervision and Review
 The involvement of other auditors in the audit of components, for example, subsidiaries, branches and
divisions.
 The involvement of experts.
 The number of locations.
 Staffing requirements.
Other Matters
 The possibility that the going concern assumption may be subject to question.
 Conditions requiring special attention, such as the existence of related parties.
 The terms of the engagement and any statutory responsibilities.
 The nature and timing of reports or other communication with the entity that are expected under the
engagement.
The Audit Program
The auditor should develop and document an audit program setting out the nature, timing and extent of
planned audit procedures required to implement the overall audit plan.
The audit program serves as a:

1) Set of instructions to assistants involved in the audit; and
2) Means to control and record the proper execution of the work.
The audit program also contains:

1) The audit objectives for each area; and
2) A time budget in which hours are budgeted for the various audit areas or procedures.
In preparing the audit program, the auditor would consider the following:
1) Specific assessments of inherent and control risks and the required level of assurance to be
provided by substantive procedures;
2) Timing of tests of controls and substantive procedures;
3) Coordination of any assistance expected from the entity, the availability of assistants and the
involvement of other auditors or experts; and
4) Other matters considered by the auditor in developing the overall audit plan need to be considered
in more detail during the development of the audit program.
Changes to the Overall Audit Plan and Audit Program
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The overall audit plan and the audit program should be revised as necessary during the course of the
audit. Planning is continuous throughout the engagement because of changes in conditions or unexpected
results of audit procedures. The reasons for significant changes would be recorded.
Knowledge of Business
In performing an audit of financial statements, the auditor should have or obtain a knowledge of the
business sufficient to enable the auditor to identify and understand the events, transactions and practices
that, in the auditor’s judgment, may have a significant effect on the financial statements or on the
examination or audit report.
Required Level of Knowledge
The auditor’s level of knowledge for an engagement would include:

 a general knowledge of the economy and the industry within which the entity operates, and
 a more particular knowledge of how the entity operates.
The level of knowledge required by the auditor would, however, ordinarily be less than that possessed by
management.
Obtaining the Knowledge
Prior to accepting an engagement, the auditor would obtain:

 a preliminary knowledge of the industry and of the ownership,
 management and operations of the entity to be audited, and
 would consider whether a level of knowledge of the business adequate to perform the audit can be
obtained.
Following acceptance of the engagement, further and more detailed information would be obtained. To
the extent practicable, the auditor would obtain the required knowledge at the start of the engagement. As
the audit progresses, that information would be assessed and updated and more information would be
obtained.
For continuing engagements, the auditor would:

 update and reevaluate information gathered previously, including information in the prior year’s
working papers.
 also perform procedures designed to identify significant changes that have taken place since the
last audit.
The auditor can obtain knowledge of the industry and the entity from a number of sources. For example:
 Previous experience with the entity and its industry.

 Discussion with people with the entity (for example, directors and senior operating personnel).
 Discussion with internal audit personnel and review of internal audit reports.
 Discussion with other auditors and with legal and other advisors who have provided services to
the entity or within the industry.
 Discussion with knowledgeable people outside the entity (for example, industry economists,
industry regulators, customers, suppliers, competitors).
 Publications related to the industry (for example, government statistics, surveys, texts, trade
journals, reports prepared by banks and securities dealers, financial newspapers).
 Legislation and regulations that significantly affect the entity.
 Visits to the entity’s premises and plant facilities.
 Documents produced by the entity (for example, minutes of meetings, material sent to
shareholders or filed with regulatory authorities, promotional literature, prior years’ annual and
financial reports, budgets, internal management reports, interim financial reports, management
policy manual, manuals of accounting and internal control systems, chart of accounts, job
descriptions, marketing and sales plans).
Using the Knowledge
A knowledge of the business is a frame of reference within which the auditor exercises professional
judgment. Understanding the business and using this information appropriately assists the auditor in:
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 Assessing risks and identifying problems.

 Planning and performing the audit effectively and efficiently.
 Evaluating audit evidence.
 Providing better service to the client.
The auditor makes judgments about many matters throughout the course of the audit where knowledge of
the business is important. For example:
 Assessing inherent risk and control risk.

 Considering business risks and management’s response thereto.
 Developing the overall audit plan and the audit program.
 Determining a materiality level and assessing whether the materiality level chosen remains
appropriate.
 Assessing audit evidence to establish its appropriateness and the validity of the related financial
statement assertions.
 Evaluating accounting estimates and management representations.
 Identifying areas where special audit consideration and skills may be necessary.
 Identifying related parties and related party transactions.
 Recognizing conflicting information (for example, contradictory representations).
 Recognizing unusual circumstances (for example, fraud and noncompliance with laws and
regulations, unexpected relationships of statistical operating data with reported financial results).
 Making informed inquiries and assessing the reasonableness of answers.
 Considering the appropriateness of accounting policies and financial statement disclosures.
The auditor should ensure that assistants assigned to an audit engagement obtain sufficient knowledge of
the business to enable them to carry out the audit work delegated to them.
To make effective use of knowledge about the business, the auditor should consider how it affects the
financial statements taken as a whole and whether the assertions in the financial statements are consistent
with the auditor’s knowledge of the business.
Audit Materiality
The auditor should consider materiality and its relationship with audit risk when conducting an audit.
“Information is material if its omission or misstatement could influence the economic decisions of users
taken on the basis of the financial statements. Materiality depends on the size of the item or error judged
in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or
cut-off point rather than being a primary qualitative characteristic which information must have if it is to
be useful.”
The auditor considers materiality at both the overall financial statement level and in relation to individual
account balances, classes of transactions and disclosures.
Materiality should be considered by the auditor when:
(a) determining the nature, timing and extent of audit procedures; and
(b) evaluating the effect of misstatements.
The Relationship Between Materiality and Audit Risk
There is an inverse relationship between materiality and the level of audit risk, that is, the higher the
materiality level, the lower the audit risk and vice versa.
Materiality and Audit Risk in Evaluating Audit Evidence
The auditor's assessment of materiality and audit risk may be different at the time of initially planning the
engagement from at the time of evaluating the results of audit procedures. This could be because of:
 a change in circumstances; or
 because of a change in the auditor's knowledge as a result of the audit.
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Evaluating the Effect of Misstatements
In evaluating the fair presentation of the financial statements the auditor should assess whether the
aggregate of uncorrected misstatements that have been identified during the audit is material.
The aggregate of uncorrected misstatements comprises:
(a) specific misstatements identified by the auditor including the net effect of uncorrected
misstatements identified during the audit of previous periods; and
(b) the auditor's best estimate of other misstatements which cannot be specifically identified (i.e.,
projected errors).
If the auditor concludes that the misstatements may be material the auditor needs to:
 consider reducing audit risk by extending audit procedures; or
 requesting management to adjust the financial statements.
If management refuses to adjust the financial statements and the results of extended audit procedures do
not enable the auditor to conclude that the aggregate of uncorrected misstatements is not material, the
auditor should consider the appropriate modification to the auditor’s report in accordance with PSA 700
“The Auditor’s Report on Financial Statements.”
IV. Recommended Reference(s):

1. Text Book - Auditing Theory Edition by Salosagcol
2. Text Book – Assurance Principle by Cabrera
3. Text Book Auditing & Assurance Services - David Ricchiute
4. Philippine Standards on Auditing Compilations
5. Internet
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MANAGEMENT ADVISORY SERVICES
I. Topic(s):
Systems Design: Process Costing
II. Learning Objective(s)

(after studying the topic, you should be able to):
1 Record the flow of materials, labor, and overhead through a process costing system.
2 Compute the equivalent units of production using the weighted-average method.
3 Compute the cost per equivalent unit using the weighted-average method.
4 Assign costs to units using the weighted-average method.
5 Prepare a cost reconciliation report.
6 Compute the equivalent units of production using the FIFO method.
7 Compute the cost per equivalent unit using the FIFO method.
8 Assign costs to units using the FIFO method.
9 Prepare a cost reconciliation report using the FIFO method.
10 Allocate service department costs to operating departments using the direct method.
11 Allocate service department costs to operating departments using the step-down method.
III. Rundown
1. Please watch below link to know and understand the topic

https://www.youtube.com/watch?v=GJGklGGbCzw
https://www.youtube.com/watch?v=W8vWMfEolZY
https://www.youtube.com/watch?v=rgYD1knooNU

1. Managerial Accounting by Garrison
2. Managerial Accounting by Kieso Weyganth
3. Managerial Accounting by local authors
4. Internet
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THEORY OF ACCOUNTS
I. Topic(s):
RECEIVABLES, NOTES RECEIVABLE, LOANS RECEIVABLE, RECEIVABLE
FINANCING
II. Learning Objectives:

Understand concepts of RECEIVABLES and RECEIVABLE FINANCING
III. Rundown
Please read the latest textbook version of “Financial Accounting Volume 1” by Valix
Important things to remember

Classes of Receivables
 Trade Receivables are claims arising from sale of Merchandise or services in the
ordinary course business. The usual types are accounts receivables and notes
receivables.
 Nontrade receivables represent claims arising from sources other than the sale of
merchandise or ordinary course of Business such as the following:
- Advances to or receivables from stockholders, directors, officers or employees.

- Advances to affiliates companies
- Advances to suppliers
- Subscriptions receivables
- Creditors accounts
- Special deposits on contract bids
- Accrued income receivables such as dividends receivables accrued rent
income, accrued royalties income and accrued interest on bonds investment.
- Claims for insurance, Tax refunds, lawsuit, merchandised damaged or lost in
transit, returnable items, etc.
Balance Sheet Classification
 Trade receivables which are expected to be realized in cash within the normal
operating cycle or one year, whichever is longer, are classified as current assets.
 Nontrade receivables which are expected to be realized in cash within one year,
the length of the operating cycle not with standing are classified as current asset.
If collected beyond one year, classified as non-currents assets.
Balance Sheet Presentation
 Trade receivables and nontrade receivables which are currently collectibles

should be presented on the face of the Balance sheet as one line item called Trade
and other receivables, however details of the total and other receivables should be
disclosed in the notes to financial statements.
 Nontrade receivables which are not currently collectible are classified as non-
current assets and presented on the face of the Balance Sheet either as long term
investments or other non-current assets.
Valuation of Accounts Receivable
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 Accounts receivable should be stated at NRV (Gross receivables reduced by

related allowances such as for returns, discounts, freight charged and bad debts).
 Receivables denominated in foreign currency should be translated to Local
currency at the exchange rate on Balance Sheet date.
Terms related to freight charge
 FOB Destination – Ownership of the goods purchased is vested in the buyer upon
receipt thereof. The seller is responsible for the freight charge up to the point of
destination.
 FOB Shipping Point – Ownership of the goods purchased is vested in the buyer
upon shipment thereof. The buyer is responsible for the transportation charge
from the point of shipment to the point of destination.
 Freight Collect – Freight charge on the goods shipped is not yet paid.
 Freight Prepaid – Freight charge on the goods shipped is already paid by the
seller.
Accounting for Bad Debts
 Allowance Method – requires recognition of a Bad debt loss if the accounts are
doubtful of collection. It conforms with matching principle and Accounts
Receivables is properly stated at NRV.
 Direct with off Method – Requires recognition of a Bad bebt loss only when the
accounts proved to be worthless or uncollectible. Often used by small business
and BIR recognizes only this method.
Method of Estimating Bad debts
 Aging of accounts receivables or Balance Sheet approach – Involves an analysis

of the accounts where they are classified into not due or past due. The allowance
is determined by multiplying the total of each classification by the rate or percent
of loss experienced by the company each category.
 Percent of sales or income statement approach – The amount of sales for the year
is multiplied by a certain rate to get the doubtful accounts expense. The rate
maybe applied on credits sales or total sales.
 Percent of accounts receivable or balance sheet approach- Certain rate is
multiplied by the open accounts at the end of the period to get the required
allowance balance. The rate used is usually determined from past experience of
the company.
Receivables Financing
 Receivables financing is the Financial Flexibility or capability of an Enterprise to raise
money out of its receivables.
 Forms of Receivables Financing are:
 Pledge of Accounts receivables serve as collateral security for the loan.

- The loan is recorded by debiting cash and discounts on note Payable if
loan is discounted and crediting note payable.
- Pledged account is continue to recognize and report as receivable with
appropriate disclosure
- Charge interest on the carrying value of the liability.
 Assignment of Accounts receivables
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- Means that a barrower called the assignor transfers it’s appropriate its
rights in some of its accounts receivable to a lender called the assignee in
consideration for a loan.
- Transfer the account receivable to account receivable assigned.
- Recognized the proceeds as liability and charge. Interest on the carrying
value of the liability.
- Changes in the value of the assigned receivable such as returns, write-off
and collections within or after the discount period are accounted the usual
way with a corresponding credit to the account Accounts receivable-
assigned”.
- Any Balance in the Accounts receivable-assigned is reported and
classified in the same manner for outstanding Accounts receivable.
- Assignment maybe done either on a non-notification basis where
customers are not informed that their accounts have been assigned or
notification basis where customers are notified to make their payment to
the assignee.
 Factoring
- Means sale of accounts receivables on a without recourse notification
basis.
- Enterprise actually transfer ownership of it’s Accounts receivable to the
factor
- Factor assumes responsibility for uncollectible factored accounts.
- Forms of factoring
A.)Casual factoring – it is an ordinary sale assets where the difference
between the sales price and the book value of the asset sold represents gain or
loss. The loss on factoring is classified as other operating expense.
-The sale is recorded by debiting cash, allowance for doubtful accounts,
Loss of factoring if any and Crediting Accounts receivable.
 Factoring as a Continuing Asset Agreement

- Involved a continuing arrangement where a financing company purchases
all of the A/R of a certain company.
- Factor Holder – Amount with hold by the factor as a protection against
customer returns and allowances and other special adjustment. It is
actually a receivable from factor and classified as current assets.
 Notes receivables are claims supported by formal promises to pay usually in the forms of
notes.
 When a promissory note matures and is not paid, it is said to be dishonored.

Dishonored notes should be removed from the Notes receivable account and
transferred to accounts receivable at an amount to include, if any interest and
other charges.
 Discounting of notes receivable.
- To discount the note, the pay must endorse it. Thus payee becomes an
endorser and the bank becomes an endorsee.
- Endorsement may be:
A.) With recourse which means that the endorser shall pay the endorsee if the
maker dishonors the note. This is the contingent or secondary liability of
the endorser. The transaction is recorded by debiting cash (net proceeds),
crediting notes receivables discounted (fair value). It must be noted that if
the net proceeds exceed the face value of the note discounted the excess is
credited to interest income but if the net proceeds are less than the face
value of the note discounted, the difference is debited to the interest
expense.
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B.) Without recourse which that means that the endorser avoids future
liability even if the maker refuses to pay the endorsee on the date of
maturity. The Notes receivables account should be credited directly
because there is no more contingent liability.
- Discounting own note.
The party discounting is the maker and therefore primary liability, not a
contingent liability, exists. In effect the party discounting entering into a
contract of loan with endorsee. The note discounted is recorded by
debiting cash, discount on Notes payable and crediting Notes payable.
Balance Sheet Presentation
The balance of the undiscounted Notes Receivable is included in (Trade and other
Receivables” presented as current asset. Notes receivable discounted with recourse should be
excluded from total receivables with disclosure of the contingent liability but if the note
receivable is without recourse notes receivable should be credited.
Valuation of Notes Receivable
- Notes Receivable should be stated at their face value minus any allowance for doubtful
notes. Any accrued interest on the notes should be stated separately.
- Long Term Notes Receivable may be stated at their discounted amount when the notes
nominally bear no interest or an interest rate which is unreasonably low.
- Long Term Notes Receivable which is interest-bearing is stated at the face value.
- Short Term Notes Receivables should be stated at face amount because the difference
between the present value and face value is but very substantial.

1. Latest Edition - Financial Accounting 1 by Conrado Valix
Philippine Accounting Standards
2. Philippine Accounting Standards Compilation
3. Internet
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BUSINESS LAW
I. Topic(s):
Law on Business Transactions - Contracts
II. Learning Objective(s):

To learn about the following concepts of contracts:
1. Classification of contracts
2. Elements and stages of contracts
3. Freedom to contract and limitations
4. Persons bound by contract
5. Consent – capacitated person
6. Object of contracts
7. Cause or consideration of contracts
8. Formalities, interpretation and reformation of contracts
9. Defective contracts: recissible, voidable, unenforceable, and void
III. Rundown
Please read above topic in the latest textbook version of “Obligation and Contract” by Hector S.
De Leon

Latest Edition - “Obligation and Contract” by Hector S. De Leon
Latest Edition - “Obligation and Contract” by Suarez
Civil Code
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ONLINE ASSESSMENTS
Reminders:
1. Should be submitted using excel format on or before January 15, 2019 exclusively to
saintvincentdeferrercollege@yahoo.com
2. Answers should follow below format for easy checking
a. Mutiple Choice
Multiple
Choice AT TOA MAS BL
1 a a b a
2 c a a a
3 a a b a
4 c a a a
5 a a b a
6 c
7 a
8 a
9 c
10 a
b. True or False
True or
False AT TOA MAS BL
1 True False True False
5 True False
6 True False
7 True False
8 True False
9 True False
10 True False
c. Identification
True or
False AT TOA MAS BL
Management
1 PSA GAAP Accounting Obligatio
2 AASC
3
4
5
6
7
8
9
10
d. Problem Solving
– must write/type the solution and answer.
e. Fill in the blanks
– must write the question and answer
3. Excell file should have a file name which consists of surname, first name and part
number (Example: SantosHectorPart1, DelaCruzJuanPart1, etc.)
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QUESTIONS:
(Multiple Choice, Computation, True or False & Identification)
Auditing Theory
1. Which of the following is least likely to be required on an audit?

a. Test appropriateness of journal entries and adjustment.
b. Review accounting estimates for biases
c. Evaluate the business rationale for significant, unusual transactions.
d. Make a legal determination of whether fraud has occurred.
2. An audit program is:

a. An overview of the company and a general plan for the audit work to be accomplished.
b. A generic document that auditing firms have developed to lead the process of the audit
through a systematic and logical process.
c. A budget of the time that should be necessary to complete each phase of the audit
procedures.
d. The detailed plan of audit procedures to be performed in the course of the audit.
3. An audit plan is a:
a. Detailed plan of analytical procedures and all substantive tests to be performed in the
course of the audit.
b. Generic document that auditing firms have developed to lead the process of the audit
through a systematic and logical process.
c. Budget of the time that should be necessary to complete each phase of the audit
procedures.
d. Document that provides an overview of the company and a general plan for the audit
work to be accomplished, timing of the work, and other matters of concern to the audit.
4. Accepting an engagement to compile a financial projection for a publicly held company most
likely would be inappropriate if the projection were to be distributed to
a. All stockholders of record as of the report date.
b. A bank with which the entry is negotiating for a loan.
c. A labor union with which the entity is negotiating a contract.
d. The principal stockholder, to the exclusion of the other stockholders.
5. The use of an audit engagement letter is the best method of assuring the auditor will have
which of the following?
a. Auditor will obtain sufficient appropriate audit evidence.
b. Management representation letter
c. Cooperation from other auditors
d. Access to all books, accounts and vouchers required for audit purpose
15
unlawful.
Management Advisory Services
1. A company's Department 2 costs for June were:

Cost from Department 1 $16,320
Cost added in Department 2:
Materials 43,415
Labor 56,100
Factory overhead (FOH) 58,575
The quantity schedule shows 12,000 units were received during the month from Department 1; 7,000
units were transferred to finished goods; and 5,000 units in process at the end of June were 50% complete
as to materials cost and 25% complete as to conversion cost.
How much is the amount of Work in process ending inventory?
2. During April, 20,000 units were transferred in from department A at a cost of $39,000. Materials cost
of $6,500 and conversion cost of $9,000 were added in department B. On April 30, department B had
5,000 units of work in process 60% complete as to conversion as costs. Materials are added in the
beginning of the process in department B.
How much is the cost per equivalent unit for conversion costs?
3. During February, the Assembly department received 60,000 units from Cutting department at a unit
cost of $3.54. Costs added in the Assembly department were: materials, $41,650; labor, $101,700; and
factory overhead. $56,500. There was no beginning inventory. Of the 60,000 units received, 50,000 were
transferred out; 9,000 units were in process at the end of the month (all materials, 2/3 converted); 1,000
lost units were 1/2 complete as to materials and conversion costs. The entire loss is considered abnormal
and is to be charged to factory overhead.
How much cost is transferred to finished goods?
4.Michael, Inc., uses a process-costing system. A newly hired accountant has identified the following
procedures that must be performed by the close of business on Friday:
1—Calculation of equivalent units

2—Analysis of physical flows of units
3—Assignment of costs to completed units and units still in process
4—Calculation of unit costs
Which of the following choices correctly expresses the proper order of the preceding tasks?
A. 1, 2, 3, 4.
B. 1, 2, 4, 3.
C. 1, 4, 3, 2.
D. 2, 1, 4, 3.
E. 2, 1, 3, 4.
5. Which of the following data are needed to calculate total equivalent units under the weighted-
average method?
A. Work-to-date on ending work in process, units started during the period.
B. Units completed during the period, work-to-date on ending work in process.
C. Work to complete beginning work in process, work-to-date on ending work in process.
D. Work to complete beginning work in process, units completed, work done on ending work in
process.
E. Units completed, work to complete beginning work in process.
16
unlawful.
Theory of Accounts
1. Receivables are classified in the statement of financial position as either trade or non-trade
receivables. True or False?
Trade receivables include notes receivable and advances to officers and employees.True or False?
Ideally, a company should measure receivables in terms of their present value, that is, the
discounted value of the cash to be received in the future. True or False?
2. The percentage-of-receivables approach of estimating uncollectible accounts emphasizes

matching over valuation of accounts receivable. True or False?
The percentage-of-sales method results in a more accurate valuation of receivables on the balance
sheet. True or False?
Companies record and report long-term notes receivable on a discounted basis. True or False?
3.
When the stated rate of interest exceeds the effective rate, the present value of the note receivable
will be less than its face value. True or False?
When buying receivables with recourse, the purchaser assumes the risk of collectibility
and absorbs any credit loss. True or False?
The receivables turnover ratio is computed by dividing net sales by the ending net
receivables. True or False?
4. Which of the following items should be included in accounts receivable reported on the statement
of financial position?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers.
5.Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale, depending
upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor by the owner
of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.
d. The financing cost (interest expense) should be recognized ratably over the collection period
of the receivables.
17
unlawful.
Business Law
1. Annulment is the remedy granted by law to the contracting parties and sometimes even to
third persons in order to recover indemnity for damages caused them by a contract, even
if such contract be valid, by means of restoration of things to their condition prior to the
celebration of the contract.
Recision is the remedy granted by law, for reason of public interest, for the declaration of
the inefficacy of a contract based on a defect or vice in the consent of one of the
contracting parties in order to restore them to their original position before the contract
was executed.
a. True, True b. True, False c. False, True d. False, False
2. ____________ is the rule which requires the certain agreements or some note or
memorandum thereof, shall be in writing and subscribed by the party charged or by his
agent; otherwise, such agreement shall be enforceable by action because evidence of the
same cannot be received without the writing, or a secondary evidence of its contents.
3. ____________ Class of void contract where a requisite or some of the essential requisites
of a contact are lacking or where the formalities prescribed by law or validly are not
complied with.
4. Recovery is permitted in void or illegal contracts when the law sets, or authorizes the
setting of, a minimum wage for laborers and a contract is agreed upon by which a laborer
accepts a lower wage, he shall be entitled to recover the deficiency?
Void contract cannot be ratified?
a. True, True b. True, False c. False, True d. False, False
5. Which of the following is not a ground for annulment of a contract?

a. limitation b. intimidation c. mistake d. violence
18
unlawful.

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SAINT VINCENT DE FERRER COLLEGE AUGUST 2019

BS ACCOUNTANCY (1st semester SY 2020-2019) Part 4

II. Learning Objective(s):

2 Identify the factors that auditors consider in accepting new clients.

3 Explain the auditors' responsibilities when planning an audit.

Terms of Audit Engagements

The auditor may also wish to include in the letter:

of the engagement letter.

When relevant, the following points could also be made:

Acceptance of a Change in Engagement

If the auditor agreed to a change of the engagement:

Appointment of the Independent Auditor

The first standard of fieldwork (performance standards) states that:

Importance of Adequate Planning

Planning also assists in proper:

The Overall Audit Plan

Knowledge of the Business

Understanding the Accounting and Internal Control Systems

Risk and Materiality

Nature, Timing and Extent of Procedures

 Possible change of emphasis on specific audit areas.

Coordination, Direction, Supervision and Review

The Audit Program

The audit program serves as a:

The audit program also contains:

Changes to the Overall Audit Plan and Audit Program

Required Level of Knowledge

The auditor’s level of knowledge for an engagement would include:

Obtaining the Knowledge

Prior to accepting an engagement, the auditor would obtain:

For continuing engagements, the auditor would:

 Previous experience with the entity and its industry.

Using the Knowledge

 Assessing risks and identifying problems.

 Assessing inherent risk and control risk.

Materiality should be considered by the auditor when:

The Relationship Between Materiality and Audit Risk

Materiality and Audit Risk in Evaluating Audit Evidence

Evaluating the Effect of Misstatements

IV. Recommended Reference(s):

MANAGEMENT ADVISORY SERVICES

II. Learning Objective(s)

2 Compute the equivalent units of production using the weighted-average method.

4 Assign costs to units using the weighted-average method.

5 Prepare a cost reconciliation report.

6 Compute the equivalent units of production using the FIFO method.

8 Assign costs to units using the FIFO method.

9 Prepare a cost reconciliation report using the FIFO method.

1. Please watch below link to know and understand the topic

IV. Recommended Reference(s):

II. Learning Objectives:

Important things to remember

- Advances to or receivables from stockholders, directors, officers or employees.

Balance Sheet Classification

Balance Sheet Presentation

 Trade receivables and nontrade receivables which are currently collectibles

Valuation of Accounts Receivable

 Accounts receivable should be stated at NRV (Gross receivables reduced by

Terms related to freight charge

Accounting for Bad Debts

Method of Estimating Bad debts

 Aging of accounts receivables or Balance Sheet approach – Involves an analysis

 Forms of Receivables Financing are: