prelims

08/29/25

Treasury Operations

They represent all activities relating to the purchase. sale, borrowing, and lending of financial instruments.

Cooperative Banks

These banks are very similar to rural banks, but the main difference is in their ownership.

Demand Deposits

These deposits may be withdrawn by check or through an automated teller machine (ATM) upon the customers' demand.

Credit Supervision

It includes reviewing the loans, preparing a status report about the loans, and computing the provisions of the loans.

Among the various risks associated with banking activities, what is the risk that a customer or counterparty will not settle an obligation in full when due or at any time thereafter?

Credit Risk

Not-for-profit Entities

Typically, organizations in this industry are tax- exempt charities or other types of public service organizations, and as such, they are not required to pay most taxes.

Competence

This includes consideration of whether the audit firm personnel have knowledge of relevant industries and have experience with relevant regulatory or reporting requirements, or the ability to effectively gain the necessary skills and knowledge.

PAPS 1006

What practice statement identifies the rules and procedures in conducting an audit in banks?

Telecommunications

It is made up of companies that make communication possible globally, whether through the phone or the Internet, through airwaves or cables, through wires, or wirelessly.

Financial Service Sector

What specialized industry is primarily responsible for mobilizing domestic savings and converting these funds into directly productive investments?

Operational Risk

The risk of direct or indirect loss resulting from inadequate or failed internal processes, people, systems, or external events.

Cash Flow Statement

Which of the following is NOT included in the BSP- issued guidelines for banks about the Financial Reporting Package (FRP)?

Utilities and Power

This industry includes companies that provide basic amenities, such as water and electricity.

Bangko Sentral ng Pilipinas (BSP)

It is the independent central monetary authority in the Philippines that has regulatory and supervisory power over banks and non-bank financial institutions. 

Construction and Real Estate

It encompasses many facets of property, including development, appraisal, marketing, selling, leasing, and management of commercial, industrial, residential, and agricultural properties.

Obtaining knowledge of the business

This stage includes understanding the regulatory environment, risks, and risk management process of the client.

Concurrent accounting principles or internal controls may match the continuing development of new products and banking practices.

Which of the following is NOT a special audit consideration that arises in the audits of banks?

The policies should be inconsistent with the bank's business strategies, capital strength, management expertise, regulatory requirements, and the types and amounts of risk it may accept.

Which is INCORRECT concerning the oversight and involvement in the control process by those charged with governance?

Recording, Authorization, and Reconciliation

Which of the particular duties should be segregated in the testing of the bank's controls on deposits?

Collection of deposits

Which of the following statements is NOT a source of funds by non-bank financial institutions to finance lending and/or investment operations?

IFRS 15 - Revenue from Contracts with Customers

What is the MOST relevant accounting standard for retail?

They often assume significant commitments without any initial transfer of funds other than, in some cases, the payment of fees. These commitments may involve memorandum accounting entries only.

Which of the following is a CORRECT characteristic of a bank?

Both statements are TRUE

Analyze the following statements:

Statement 1: The oil and gas industry is divided into three (3) segments.

Statement 2: One of the relevant accounting standards for companies in the oil and gas industries is IFRS 6.

Does the bank have written procedures for the independent dispatch of pre-numbered inward confirmations to counterparties for all trades entered by the dealer?

Which of the following questions may NOT serve as guides in auditing treasury operations?

It is when credit risk has increased significantly since initial recognition

Which of the following pertains to Stage 2 in identifying the expected credit losses (ECLs) for the loans the bank provides?

Statement II is correct

Which statement is/are CORRECT in connection with PSA 320 Audit Materiality?

Statement I. Banks are often subject to regulatory requirements, such as the requirement to maintain maximum levels of capital.

Statement II. The appropriateness of the going concern assumption often depends on the bank's reputation as a sound financial institution and actions by regulators.

Statement III. The auditor may establish a materiality level to identify misstatements that, if uncorrected, would result in a significant contravention of such regulatory requirements.

It is when credit risk has increased significantly since initial recognition.

Which of the following statements is INCORRECT about the application of Stage 1 on the loans?

Mining companies must observe the provisions of Republic Act (R.A) 1942

Which statement is CORRECT based on the specialized industry aligning with the applicable laws and regulations?

Financial Instruments

Which of the accounting standards pertains to International Financial Reporting Standard (IFRS) 9, which was locally adopted as Philippine Financial Reporting Standard (PFRS) 9?

The auditor can pass all responsibility over to an expert

Which of the following statements is INCORRECT concerning reliance on experts?

For prudential reporting purposes, banks must adopt the expected credit loss model in measuring credit impairment following the provisions.of PFRS 11.

Which is NOT an exception to the general rule "all banks shall comply with all the provisions of PFRS/PAS in preparing their audited financial statements"?

Regular Contributions

Which is NOT a peculiar transaction that an auditor may focus on in their risk-based audit?

May perform translation of foreign currency or recalculation

Which of the following CANNOT be done by the auditor to obtain knowledge about the business?

They operate with very high leverage (the ratio of capital to total assets is high), which increases their risk of failure and vulnerability to adverse economic events.

Which of the following is NOT a characteristic of banks?

I, III

Which of the following is/are the regulator/s of the financial service sector?

I. Insurance Commission (IC)

Il. Securities and Exchange Commission (SEC)

III. Bangko Sentral ng Pilipinas (BSP)

Statement 1 is TRUE, while Statement 2 is FALSE

In auditing the entities in specialized industries, the auditor SHOULD consider:

Statement 1. Identification of the risk of material misstatement in a specialized industry should be approached in the same way as in any other audit.

Statement 2. Larger audit firms are likely to meet the competence requirement for almost any type of industry

PAS 41

Which financial reporting standard is applicable to the agriculture sector?

Subjectivity

In auditing specialized industries, which of the following should NOT be considered by the auditor?

Statement III is incorrect

Analyze the following statements:

Statement I: Thrift Banks are engaged in accumulating savings of depositors and investing them in bonds and/or loans.

Statement II: Rural Banks extend assistance to farmers throughout the stages of production, from buying seedlings to the marketing of their produce.

Statement III: Islamic Banks accept the payment . and receipt of a predetermined rate of return and are founded on the principle of risk-sharing.

The risk that a customer or counterparty will settle an obligation in full when due or at any time thereafter

Which of the following statements does NOT pertain to banks' credit risks?

The auditor may compare the actual procedures of banks with the established policy. Moreover, he may perform translation of foreign currency or recalculation.

Jose, an auditor, is engaged to perform the audit of AB Bank. One of the risks is, the loans are not completely and accurately recorded. Which of the following substantive procedures should Jose perform?

The risk of the inappropriate recognition of impairment investment.

These are the identified risks in the actual audit of treasury operations. Which DOES NOT BELONG to treasury process risk points?

The risk of fee income is incorrectly calculated and recorded; the control to be tested is the bank system configuration of fee income calculation.

These are the identified risks and tests of controls the auditor should consider in an actual audit of bank deposits. Which does NOT belong to the deposits process risk points?

Which of the statements is TRUE regarding the auditors' plan to obtain audit evidence through reliance on experts?

A. In an audit of a bank, specialists may be brought in to value complex financial statements.

B. The fact that the audit is of a specialized nature does not mean that the auditor can pass all responsibility over to an expert.

C. Using experts can provide high-quality audit evidence in specialist situations, but the auditor must be careful to fully evaluate the findings of the auditor's expert and not to over-rely on their work.

D. All statements are true.

Testing deposit accounts through confirmation.

Jane is engaged to audit the financial service sector. To gather audit evidence about her client's deposit accounts, she wants to perform substantive audit procedures. Which of the following procedures SHOULD Jane perform?

Reconciliation of investments sub-ledger to custodian statements.

The auditor needs to identify risks and test controls in an actual audit of investment operations. What should the auditor do to test the control, if payments are NOT made/received or NOT properly recorded?

The risk of interest expense and/or accruals is incorrectly calculated or recorded; the control to be tested is the system of interest expense calculation.

These are the identified risks and tests of controls the auditor should consider in an actual audit of bank lending. Which DOES NOT belong to the lending process risk points?

Bank Confirmation

The auditor needs to identify risks and substantive procedures to be performed in the actual audit of treasury operations to know if there are any trading transactions that are not approved. Which of the following substantive procedures should be considered by the auditor?

Pedro carries a considerable amount of professional liability insurance.

Pedro, an auditor, must decide whether to accept an engagement auditing a financial institution. Which of the following circumstances would make it easier for him to accept the high risks associated with such an engagement?

A corporate loan with an outstanding balance significantly above the authorized credit line, operating in a politically unstable country

Anna is auditing the lending portfolio of ABC Bank. To assess management's awareness of the bank's credit exposure problems, she plans to select loan accounts for detailed review. Which of the following accounts should Anna prioritize based on risk indicators and audit relevance?