ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  October 2022 CPA Licensure Examination

FARAP-4420
FINANCIAL ACCOUNTING AND REPORTING / AUDITING PRACTICE
S. IRENEO  C. UBERITA  G. MACARIOLA  C. ESPENILLA  J. BINALUYO

OTHER TOPICS
PART 1: DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK, STANDARD-SETTING
BODIES AND REGULATION OF ACCOUNTANCY PROFESSION

1. This was established by the Professional Regulation Commission under the Implementing Rules and
Regulations of RA 9298 or the Philippine Accountancy Act of 2004 to assist the Board of Accountancy in
carrying out its power and function to promulgate accounting standards in the Philippines.
a. International Accounting Standards Board (IASB)
b. Auditing and Assurance Standards Council (AASC)
c. Financial Reporting Standards Council (FRSC)
d. Accounting Standards Council (ASC)

2. International Accounting Standards Committee (IASC) is to International Accounting Standards (IAS) as

International Accounting Standards Board is to:
a. International Financial Reporting Standards (IFRS)
b. Statement of Financial Accounting Standards (SFAS)
c. Standards Interpretations Committee (SIC)
d. International Financial Reporting Standards Interpretations Committee (IFRIC)

3. The FRSC formed the _____ to assist the FRSC in establishing and improving financial reporting standards in
the Philippines. The role of the ____ is principally to issue implementation guidance on PFRSs. The ____
members are appointed by the FRSC and include accountants in public practice, the academe and regulatory
bodies and users of financial statements.
a. Continuing Professional Development Council (CPDC)
b. Standards Interpretations Committee (SIC)
c. Philippine Interpretations Committee (PIC)
d. Auditing and Assurance Standards Council (AASC)

4. Which of the following is incorrect regarding the composition of the FRSC?

a. The FRSC shall comprised of fifteen members (15) with a Chairman.
b. The Chairman of FRSC should have been or presently a senior practitioner in public practice.
c. Members of the FRSC shall be representatives (one each) from Board of Accountancy (BOA),
Securities and Exchange Commission (SEC), Banko Sentral ng Pilipinas (BSP), Bureau of
Internal Revenue (BIR), Commission on Audit (COA), A major organization and users of
financial statements.
d. Members of FRSC shall be represented by members of the accredited national professional
organization of CPAs (two each) in public practice, commerce and industry, education and
government.

5. Which of the following is incorrect regarding the development of accounting standards in the Philippines?
a. The FRSC monitors the technical activities of the IASB and invites comments on exposure
drafts of proposed IFRSs as these are issued by the IASB.
b. When finalized, these are adopted as Philippine Financial Reporting Standards (PFRSs).
c. The FRSC similarly monitors issuances of the International Financial Reporting
Interpretations Committee (IFRIC) of the IASB, which it adopts as Philippine
Interpretations–IFRIC.
d. PFRSs and Philippine Interpretations–IFRIC approved for adoption are submitted to the COA
and PRC for approval.

6. What is the body authorized by RA 9298 to promulgate rules and regulations affecting the practice of
accountancy profession in the Philippines?
a. Financial Reporting Standards Council
b. Securities and Exchange Commission
c. Board of Accountancy
d. Philippine Institute of Certified Public Accountants

7. Which of the following is correct regarding the body authorized by RA 9298 to promulgate rules and regulation
affecting practice of the accountancy profession in the Philippines?
a. It shall be composed of a chairman and six (6) members to be appointed by the President
of the Philippines from a list of three (3) recommendees for each position and ranked by
the Commission, from a list of five (5) nominees for each position submitted by the
Accredited Professional Organization.
b. It shall elect a vice-chairman from among its members for a term of one (1) year.
c. In the event of a vacancy in the office of the chairman, the vice-chairman shall assume
such duties and responsibilities for the remaining term.
d. The four (4) sectors in the practice of accountancy shall as much as possible be equitably
represented in the Board.

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8. Which of the following is not a qualification of the members of the body authorized by RA 9298 to promulgate
rules and regulation affecting practice of the accountancy profession in the Philippines?
a. Must be a natural-born citizen and a resident of the Philippines.
b. Must be a duly registered Certified Public Accountant with at least ten (10) years of work
experience in public practice.
c. Must be of good moral character and must not have been convicted of crimes involving
moral turpitude.
d. Must not have any pecuniary interest, directly or indirectly, in any school, college, university
or institution conferring an academic degree necessary for admission to the practice of
accountancy or where review classes in preparation for the licensure examination are being
offered or conducted, nor shall he/she be a member of the faculty or administration thereof
at the time of his/her appointment to the Board.
e. Must not be a Director or Officer of the APO at the time of his appointment.

9. Which of the following is not included in the powers and functions of the body authorized by RA 9298 to
promulgate rules and regulation affecting practice of the accountancy profession in the Philippines?
a. To prescribe and adopt the rules and regulations necessary for carrying out the provisions
of this Act;
b. To supervise the registration, licensure and practice of accountancy in the Philippines;
c. To issue, suspend, revoke, or reinstate the Certificate of Registration for the practice of the
accountancy profession;
d. To prescribe and/or adopt a Code of Ethics for the practice of accountancy;
e. None of the above.

10. One of the function of the body authorized by RA 9298 to promulgate rules and regulation affective practice
of accountancy profession in the Philippines is to monitor the conditions affecting the practice of accountancy
and adopt such measures, including promulgation of accounting and auditing standards, rules and regulations
and best practices as may be deemed proper for the enhancement and maintenance of high professional,
ethical, accounting and auditing standards, to assist this body in the disposal of this responsibility, the
Professional Regulation Commission through the recommendation of this body created:
a. Accounting and Auditing Standards Council (AASC) and Financial Reporting Standards
Council (FRSC)
b. Accounting and Auditing Standards Council (AASC) and Education Technical Council (ETC)
c. Financial Reporting Standards Council (FRSC) and Continuing Professional Development
Council (CPDC)
d. Financial Reporting Standards Council (FRSC) and Quality Review Committee (QRC)

11. Another function of the body authorized by RA 9298 to promulgate rules and regulation affective practice of
accountancy profession in the Philippines is to conduct an oversight into the quality of audits of financial
statements through a review of the quality control measures instituted by auditors in order to ensure
compliance with the accounting and auditing standards and practices, to assist this body in the disposal of
this responsibility, the Professional Regulation Commission through the recommendation of this body created:
a. Accounting and Auditing Standards Council (AASC)
b. Education Technical Council (ETC)
c. Continuing Professional Development Council (CPDC)
d. Quality Review Committee (QRC)

12. This body which was created by the commission upon the recommendation of the board to assist in the
attainment of the objective of continuously upgrading the accountancy education in the Philippines and is
composed of composed of seven (7) members with a Chairman, who had been or presently a senior accounting
practitioner in the academe/education and six (6) representatives:
a. Financial Reporting Standards Council (FRSC)
b. Education Technical Council (ETC)
c. Continuing Professional Development Council (CPDC)
d. Quality Review Committee (QRC)

13. The body which was created to provide and ensure the continuous education of a registered professional with
the latest trends in the profession brought about by modernization and scientific and technological
advancements and is composed of a chairperson and two (2) members:
a. Financial Reporting Standards Council (FRSC)
b. Education Technical Council (ETC)
c. Continuing Professional Development Council (CPDC)
d. Quality Review Committee (QRC)

14. The National Accredited Professional Organization for accountants in the Philippines is:
a. National Association of CPAs in Education (nACPAE)
b. Association of CPAs in Public Practice (ACPAPP)
c. Government Association of CPAs (GACPA)
d. Philippine Institute of CPAs (PICPA)
e. Association of CPAs in Commerce and Industry (ACPACI)

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PART 2: CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

1. The Conceptual Framework

a. is considered a Philippine Financial Reporting Standard (PFRS).
b. shall prevail over the provisions of PFRS in case of rare conflict.
c. is used as a guide in developing, applying and interpreting PFRS.
d. deals with a set of comprehensive concepts that underlie the preparation and presentation
of financial statements for internal users.

2. The Conceptual Framework is intended to establish

a. The generally accepted accounting principles (GAAP) in financial reporting by entities
b. The objectives and concepts used in developing financial reporting standards
c. The meaning of ‘fairly presented’ in accordance with GAAP
d. The hierarchy of sources of GAAP

3. Which of the following is NOT a basic purpose of the Conceptual Framework of Accounting?
a. To assist preparers of financial statements in developing accounting policies when a specific
Standards applies to a particular transaction.
b. To assist the Financial Reporting Standards Council (FRSC) in developing PFRS
c. To assist all parties in understanding and interpreting Standards
d. To assist preparers in developing accounting policies when a Standard allows a choice of
accounting policy.

4. Which of the following is NOT included in the scope of the FRSC Conceptual Framework?
a. Supplementary information
b. Objective of financial reporting
c. Elements of financial statements
d. Qualitative characteristics of accounting information

5. Under the Conceptual Framework, a REPORTING ENTITY is best described as an entity that
a. Chooses to prepare financial statements
b. Is required to prepare financial statements
c. Is not required to prepare financial statements
d. Is required, or chooses, to prepare financial statements

6. Determine the FALSE statement about a reporting entity.

a. A reporting entity is essentially the same as a legal entity
b. A reporting entity can be a single entity or a group of entities
c. A reporting entity can be a single entity or a component of an entity
d. Determining the boundary of a reporting entity is based on the information needs of the
primary users of the reporting entity’s financial statements

7. The objective of financial reporting indicates that a reporting entity must provide information about:
a. Economic resources and claims
b. Changes in economic resources and claims resulting from financial performance
c. Changes in economic resources and claims NOT resulting from financial performance
d. All of the choices

8. Under the Conceptual Framework for Financial Reporting, the objective of general-purpose financial
reporting is to provide financial information about the reporting entity that is useful to
a. Existing and potential investors
b. Existing investors, lenders and other creditors
c. Potential investors, lenders and other creditors
d. Existing and potential investors, lenders and other creditors

9. The objectives of financial reporting for entities are based on

a. The need for conservatism
b. Generally Accepted Accounting Principles
c. The need of the users of the information
d. management’s demand for day-to-day operations

10. General purpose financial reports must provide financial information about the reporting entity that is
useful to primary users (e.g., investors, lenders) in making decisions about all of the following, EXCEPT:
a. Providing or settling loans or other forms of credit
b. Buying, selling or holding equity or debt instruments
c. Patronizing major company products and/or services
d. Exercising rights to vote on, or otherwise influence, management’s action that affects the
use of the entity’s resources.

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11. Which of the following cannot in itself make financial information useful?
a. Relevance
b. Faithful representation
c. Understandability
d. All of the above can make financial information useful

12. Accounting information is considered to be relevant when it

a. Is verifiable and neutral
b. Is able to present complete information
c. Is capable of making a difference in a decision
d. Is understandable by reasonably informed users of accounting information

13. It is an entity-specific aspect of relevance based on the nature and magnitude of the items to which the
information relates in the context of an entity’s financial report.
a. Materiality c. Feedback value
b. Predictive value d. Confirmatory value

14. Which of these is NOT related with relevance as a qualitative characteristic of financial information?
a. Predictive value c. Materiality
b. Confirmatory value d. Conservatism

15. What are the three ingredients of ‘faithful representation’ characteristic of financial information?
a. Completeness, prudence and timeliness
b. Neutrality, verifiability and completeness
c. Prudence, substance over form and neutrality
d. Completeness, neutrality and freedom from error

16. Prudence refers to the exercise of caution when making judgements under conditions of uncertainty.
Which ingredient of faithful representation is being supported by the exercise of prudence?
a. Neutrality c. Freedom from error
b. Completeness d. Substance over form

17. It is the qualitative characteristic that helps assure users that information faithfully represents the
economic phenomenon it purports to represent so that different knowledgeable and independent
observers could reach consensus that a particular depiction is a faithful representation.
a. Relevance
b. Verifiability
c. Comparability
d. Feedback value

18. Which of the following is NOT a feature of financial information’s comparability characteristic?
a. Comparability is NOT uniformity.
b. A comparison requires at least two items.
c. Consistency, although related to comparability, is not the same.
d. Consistency is the goal; comparability helps to achieve that goal.

19. The usefulness of providing information in the financial statements is subject to the constraint of
a. Cost
b. Reliability
c. Consistency
d. Representational faithfulness

20. What are the elements that are directly related to the measurement of financial position?
a. Assets and liabilities
b. Assets, liability and equity
c. Assets, liability, income and equity
d. Assets, liability, expenses, income and equity

21. Under the latest version of the Conceptual Framework, recognition of assets, liabilities, equity, income
and expenses is appropriate if
a. It is both probable and measurable
b. It is probable or measurable, but not both
c. It results in both relevant information and faithful representation of the related item
d. It results in relevant information or faithful representation of the related item, but not both

22. Under the Conceptual Framework, the two measurement bases of financial statements are (1) historical
cost and (2) current value. Current value includes:
a. Current cost and fair value
b. Fair value and value in use
c. Value in use and current cost
d. Current cost, fair value, value in use

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23. The requirement of PAS 36, Impairment of Asset where the asset’s carrying value is compared against its
recoverable value is consistent with the conceptual framework’s requirement on using the current value
basis, more specifically the:
a. Current cost and fair value
b. Fair value and value in use
c. Value in use and current cost
d. Current cost, fair value, value in use

24. The requirement regarding the balance sheet measurement of inventories at lower of cost or net realizable
value under PAS 2 is consistent with the conceptual framework’s measurement bases of financial
statement elements, more specifically the:
a. Fair value
b. Value in use
c. Current cost
d. Current cost, fair value, value in use

25. What are the two (2) capital concepts included in the scope of the Conceptual Framework?
a. Financial and physical capital
b. Borrowed and invested capital
c. Accounting and economic capital
d. Monetary and non-monetary capital

26. What basic assumption under the Conceptual Framework may NOT be followed when an entity in
bankruptcy reports financial results?
a. Accrual basis
b. Going concern
c. Monetary unit
d. Accounting entity

27. Which one of the following statements best describes the ‘going concern’ assumption?
a. The expenses of an entity exceed its income
b. When current liabilities of an entity exceed current assets
c. The ability of the entity to continue in operation for the foreseeable future
d. The potential to contribute to the flow of cash and cash equivalents to the entity

28. Which of the following is NOT correct regarding the effective communication of financial information
according to the conceptual framework?
a. For effective communication, the presentation and disclosure of information in the general
purpose financial statement should be rules-based rather principles-based
b. For effective communication, similar items in the financial statements should be classified
together while dissimilar items should be classified apart, and that, as a general rule,
there should be no offsetting of dissimilar items.
c. Aggregation is adding together of assets, liabilities, equity, income or expenses that have
shared characteristics and are included in the same classification.
d. All of the above statements are correct.

29. The decision to recognize a financial statement element is heavily influenced by the information’s
relevance and faithful representation. Which of the following will least likely affect the faithful
representation of a financial statement element?
a. Measurement uncertainty
b. Recognition uncertainty
c. Existence uncertainty
d. The presentation and disclosure of information about the financial statements element

30. Which of the following is INCORRECT regarding the definition of the financial statements element?
a. Asset is an economic resources controlled by an entity as a result of a past event. Economic
resources are present right that has a potential to produce future economic benefits.
b. Liability is a present obligation to transfer economic resources as a result of past event.
An obligation is a duty or responsibility that an entity has nor practical ability to avoid.
c. Income is an increase in asset or a decrease in liability, which in turn increase equity,
other than those relating to transactions with claims participants.
d. Equity is the residual interest from assets after deducting all liabilities.

PART 3: THE ACCOUNTING PROCESS

1. One of the following statements is true regarding accounting process.
a. The accounting system is part of the accounting process.
b. The accounting cycle is part of the accounting process.
c. The accounting process is part of the accounting cycle.
d. The accounting system is part of the accounting cycle.

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2. These are factors that shape an accounting information system, except
a. Nature of operations c. Size of the firm
b. Volume of data handled d. Performance of the business

3. A term descriptive of accounting (as opposed to bookkeeping).

a. Routine c. Analytical
b. Clerical d. Mechanical

4. The accounting process is of 5 basic phases. The statement that best describes the classifying phase is
a. Transactions are analyzed in terms of their impact on the accounting equation.
b. Accountable transactions are entered into the accounting books.
c. Journal entries are posted to the ledgers on a per-account basis.
d. Financial statements are prepared to serve as the end-product of accounting.

5. Economic data on the transactions and other accountable events of an entity are collected by means of
a. Source documents. c. Journals.
b. Accounts. d. Accounting records.

6. The debit and credit analysis of a transaction normally takes place

a. before an entry is recorded in the journal
b. when the entry is posted to the ledger
c. when the trial balance is prepared
d. at some other point in the accounting cycle

7. A transaction that has a net effect of increasing assets and equity is

a. Payment of an expense in cash c. Retirement of treasury shares
b. Sale of goods for cash d. Collection of accounts receivable

8. Which of the following documents does not initiate an entry to be made in the accounts?
a. Sales invoice c. Purchase invoice
b. Credit memorandum d. Purchase order

9. Journals are likewise regarded as the

a. Book of Genesis c. Book of original entry
b. Book of final entry d. Book of secondary entry

10. One of the following is a valid statement:

a. Revenue accounts are decreased by credits and increased by debits
b. Asset accounts are decreased by debits and increased by credits
c. Liability accounts are decreased by credits and increased by debits
d. Expense accounts are increased by debits and decreased by credits

11. Which of the following accounts normally has a credit balance?

a. Treasury stock c. Accumulated depreciation
b. Sales returns and allowances d. Discount on bonds payable

12. Which of the following special journals is used to facilitate recording of a credit sale transaction?
a. Sales journal c. Cash receipts journal
b. Purchase journal d. Cash disbursements journal

13. A check register may be used in lieu of a

a. Cash disbursement journal c. Cash receipts journal
b. Purchases journal d. Sales journal

14. A voucher system is used in connection with transactions that involve only
a. The payment of cash c. The purchase and sale of merchandise
b. The receipt of cash d. Revenue and expense

15. Special journals help most by

a. Reducing effort in journalizing/posting c. Making possible division of labor
b. Minimizing the possibility of error d. All of the above

16. A subsidiary ledger is

a. A backup system to protect against unexpected destruction of records
b. A listing of accounts of a subsidiary company owned by a parent company
c. A listing of accounts balances just before closing entries are prepared
d. A system that relieves the general ledger of details that so bookkeeping work may be divided

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17. A chart of accounts
a. Is a listing of all account titles
b. May not be uniform across commercial enterprises
c. Should be uniform for government entities
d. All of the above

18. Which of the following is considered as a real account

a. Income Summary c. Prepaid Expense
b. Distribution costs d. Insurance Expense

19. Which of the following is considered as a nominal account?

a. Share capital c. Rent Income
b. Share premium d. Accrued Income

20. An example of an adjunct account is:

a. Accumulated profits and losses c. Carriage inwards
b. Opening stocks d. Carriage outwards

21. A trial balance

a. Proves absence of errors in the journalizing and posting process
b. Is normally prepared twice in the accounting cycle
c. Proves that debits and credits are equal in the ledger
d. Is not useful in detecting potential errors committed in the posting process

22. Which of the following errors could be disclosed by the trial balance
a. Incorrect application of GAAP c. Posting to the correct side of wrong account
b. Omission of journal entry d. Posting to the wrong side of correct account

23. When income statement accounts have zero balances, a trial balance that could be prepared is the
a. Periodic trial balance c. Post-closing trial balance
b. Adjusted trial balance d. Any of these

24. Statement I: If the debit totals exceed the credit totals in the income statement columns of the
worksheet, then there is net income for the period.
Statement II: If the debit totals exceed the credit totals in the balance sheet columns of the worksheet,
then there is net loss for the period.
a. True, True c. False, True
b. True, False d. False, False

25. Which of the following is NOT a function of an adjusting entry?

a. To record revenues and expenses already earned but not yet taken up in the books.
b. To segregate real and nominal elements in mixed accounts.
c. To record other changes in accounting value not yet reflected in the accounts.
d. To bring all nominal accounts to zero balances.

26. Adjusting entries normally involve

a. Expense and liability accounts c. Real and nominal accounts
b. Nominal accounts only d. Asset and income accounts

27. An example of adjusting entry is recording the

a. Payment of wages to employees c. Collection of an account
b. Unrecorded wages incurred d. Purchase of an equipment

28. An prepaid expense can be described as an amount

a. Paid and matched with earnings c. Not paid and not matched with earnings
b. Paid but not matched with earnings d. Not paid but matched with earnings

29. An accrued expense can be best described as an amount

a. Paid and matched with earnings c. Not paid and not matched with earnings
b. Paid but not matched with earnings d. Not paid but matched with earnings

30. An adjusting entry to accrue wages incurred but not yet disbursed is an example of
a. Reflecting unrecorded expenses incurred during an accounting period
b. Reflecting unrecorded revenues earned during an accounting period
c. Aligning recorded revenue with appropriate accounting period
d. Aligning recorded costs with appropriate accounting period

31. The receipt of advance rental is recorded by debiting cash and crediting unearned rentals, this approach
of recording is known as
a. Asset method c. Liability method
b. Expense method d. Income method

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32. If the advance payment of an expense was initially recorded in an asset account, the adjusting entry will
involve
a. A debit to expense and a credit to an asset account in the amount of the expired cost
b. A debit to expense and a credit to an asset account in the amount of the unexpired cost
c. A debit to an asset account and a credit to expense in the amount of the expired cost
d. A debit to an asset account and a credit to expense in the amount of the unexpired cost

33. Which of the following accounts is affected by the closing process?

a. Asset accounts c. Capital accounts
b. Liability accounts d. None of these

34. The income summary account

a. Is used to close the retained earnings account
b. Summarizes the changes in assets, liabilities and net earnings or less
c. Summarizes the revenue, expenses and net earnings or loss
d. Generally has a credit balance after all the accounts have been closed

35. Which of the following accounts would not be closed?

a. Gain on sale of equipment
b. Gain on retirement of bonds payable
c. Gain on sale of a financial asset at fair value through profit or losses
d. Gain on sale of treasury share

36. Reversing entries are

a. Required journal entries being done at the end of the accounting period
b. So called since they are the opposite of certain closing entries made at year end
c. To mean that the adjusting entries reversed are inaccurate or unnecessary
d. Done to simplify the subsequent recording of certain kinds of recurring transactions

37. Adjusting entries that should be reversed include prepaid items that
a. Create an expense account when adjusted
b. Were originally entered in an asset account
c. Create a liability account when adjusted
d. Create an asset account when adjusted

38. Correcting entries are done to correct records for errors pertaining to
a. Computation: recorded amounts are erroneously computed
b. Compliance with GAAP: accounting treatment and terminologies are inappropriate
c. Omission: effects of an event are not recorded
d. All of the above are subject to correcting entries

39. An example of counter-balancing error is

a. Over/Understatement of depreciation c. Expensing of capital expenditures
b. Over/Understatement of inventory d. Capitalizing of revenue expenditures

40. The basic financial statements are: (1) Statement of Financial Position (2) Statement of Changes in Equity
(3) Statement of Comprehensive Income (4) Statement of Cash Flows. In which of the following
sequences does an accountant ordinarily prepare the statements?
a. 1,4,3,2 c. 3,2,1,4
b. 2,1,3,4 d. 3,2,4,1

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