The auditor decided to render analytical procedure in testing the reasonableness of the inventory balances of the client as of December 31. The auditor used the retail method in projecting the expected inventory balance. Which of the following is incorrect?

O Under the retail method, any abnormal shortages or overages shall be deducted from cost of goods available for sale both at retail and at cost in determining the cost percentages to be used.

O The auditor is allowed to heavily rely on analytical procedure under the assumption that the internal control over inventories are strong thus the assessment of control risk is at below the maximum level.

O If the observed difference between the estimated inventory as a result of the audit and the reported inventory per books is considered material, the auditor should propose to the client the necessary adjustment to follow the auditor's estimate.

O No further audit procedure is necessary if the difference between the projected inventory balance resulting the inventory estimation (retail method) and the balance reported per books is within the auditor's tolerable error for the account balance.

23 The auditor wanting to gather evidence regarding the existence assertion over a 20% interest in voting equity securities should:

O Refer to the result of securities count on hand or on the hands of a third-party custodian.

O Refer to fair market valuation of the investee company's assets.

O Refer to the audited financial statements of the investee company to ascertain propriety of the computed share from comprehensive income and dividends.

O Refer to market quotations where share are traded in the market.

21 Which of the following is the best source of evidence, in the auditor's perspective, in determining the reasonableness of a client's estimate of inventories' net realizable value?

O Referring to the latest transaction price of similar companies selling the same products in the industry.

O Latest transaction price and cost as of the balance sheet date.

O Vouching to the last purchase invoice recorded as of the balance sheet date.

O Latest transaction prices and costs based on subsequent events review.

45 Which of the following is correct regarding the result of a cash disbursement cut-off rendered by an auditor to gather evidence regarding the completeness assertion of a financial statements audit client's liability accounts?

O A January cash disbursement entry debiting expense supported by documents dated January shall have no effect on the prior year's liability and profit.

O A January cash disbursement entry debiting accrued expense supported by documents dated December shall understate prior year's liability and profit.

O A January cash disbursement entry debiting expense supported by documents dated January shall understate prior year's liability and overstate prior year's profit.

O A January cash disbursement entry debiting accrued expense supported by documents dated January shall overstate prior year's liability and profit.

47 Which of the following may not be included in a typical audit program for auditing Retained Earnings?

O Determination of the effect of a change in policy regarding the use of average cost formula for inventories for the current year, where the entity previously elected the first-in-first-out cost formula.

O Reference to market quotations for the granting of share options to employees.

O Reference to market quotations for the declaration of a 10% stock dividends.

O Reference to fair market value of real property declared as property dividends.