AP-701 (MCQs Theories On RAP, TOC, ST)
AP-701 (MCQs Theories On RAP, TOC, ST)
AP-701 (MCQs Theories On RAP, TOC, ST)
TOC & ST: Expenditure/Purchasing, Payroll and Production Cycles (Audit of Inventories, Trade
Liabilities and Accrued Expenses
1. Which of the following is least likely to be among the auditors’ objective in the audit of inventories
and cost of goods sold?
a. Determine that the valuation of inventories and cost of goods sold is arrived at by
appropriate methods
b. Determine the existence of inventories and the occurrence of transactions affecting cost of
goods sold
c. Establish that the client includes only inventory on hand at year-end in inventory totals
d. Establish completeness of inventories
2. The receiving department is least likely to be responsible for the:
a. Determination of quantities of goods received
b. Detection of damaged or defective merchandise
c. Preparation of a shipping document
d. Transmittal of goods received to the store’s department
3. The document issued by a common carrier acknowledging the receipt of goods and setting forth the
provisions of the transportation agreement is the:
a. Bill of lading
b. Job time shipping
c. Production order
d. Production schedule
4. An auditor usually examines receiving reports to support entries in the
a. voucher register and sales returns journal.
b. sales journal and sales returns journal.
c. voucher register and sales journal.
d. check register and sales journal.
5. When a primary risk related to an audit is possible overstated inventory, the assertion most directly
related is:
a. Existence and Valuation
b. Existence and Completeness
c. Completeness and Valuation
d. Presentation and Valuation
6. Instead of taking a physical inventory count on the balance sheet date, the client may take physical
count prior to the year-end if internal control is adequate and:
a. Well kept records of perpetual inventory are maintained
b. Inventory is slow-moving
c. Computer error reports are generated for missing prenumbered inventory tickets
d. Obsolete inventory items are segregated and excluded.
7. The auditor’s analytical procedures will be facilitated if the client:
a. Uses a standard cost system that produces variance reports
b. Segregates obsolete inventory before the physical inventory count
c. Corrects material weaknesses in internal control before the beginning of the audit
d. Reduces inventory balances to the lower of cost or net realizable value.
8. When perpetual inventory records are maintained in quantities and in pesos, and internal control
over inventory is weak, the auditor would probably:
a. Want the client to schedule the physical inventory count at the end of the year
b. Insist that the client perform physical count several times during the year
c. Increase the extent of tests for unrecorded liabilities at year-end
d. Have to disclaim an opinion on the income statement for the year.
ST: Investing Cycle (Audit of Investments, PPE, Intangibles and Other Non-current Assets)
1. In order to guard against the misappropriation of company-owned marketable securities, which of
the following is the best course of action that can be taken by a company with a large portfolio of
securities?
a. Require that one trustworthy and bonded employee be responsible for access to the
safekeeping are where securities are kept
b. Requirement that employees who enter and leave the safekeeping are sign and record in a
log the exact reason for their access
c. Require that employees involved in the safekeeping function maintain a subsidiary control
ledger for securities on a current basis
d. Require that the safekeeping function for securities be assigned to a bank or stockbroker
that will act as a custodial agent.
2. Squid Company had large amounts of funds to invest on a temporary basis. The board of directors
decided to purchase securities and derivatives and assigned the future purchase and sale decisions