Mater Dei College

Cabulijan, Tubigon, Bohol 6329

Email address: [email protected]
Telephone No. 508-8106

College of Accountancy and Business Management

QUIZ 2 - APre 107 | AUDITING AND ASSURANCE: SPECIALIZED INDUSTRIES

2nd Semester, AY 2021 – 2022

Instructor: HENNESSY D. MUGA-RAMOS, CPA, CTT

MULTIPLE CHOICE. 15 pts

1. In addition to understanding the unique aspects of the airline industry, the auditor should be aware of potential
problem areas that may exist in a company engaged in airline operations. Such areas may include the
following, except:
A. Commissions, authorized or unauthorized, on sales of aircraft in foreign countries.
B. The risk of ticket exchange transactions, whether authorized or unauthorized, and similar arrangements
that are inherent in a business devoted to the sale of an attractive but perishable commodity.
C. Expenses incurred at the local level in the pursuit of passenger service, including meals, transportation,
and accommodations of various kinds for both scheduled and delayed passengers.
D. Transactions are executed in accordance with management's general or specific authorization.

2. Because of the volume and complexity of transactions associated with airline operations, auditors are often
expected to encounter the use of what system?
A. Electronic Resource Planning
B. Enterprise Information System
C. Electronic Data Processing
D. Enterprise Resource System

3. Statement I: The inventories in an airline operation are for internal consumption and not for sale; they therefore
differ substantially from the classical definition
Statement II: Because such assets are constantly changing locations, the responsibility for physical custody
and control of aircraft is substantially different from that of nonmobile fixed assets.

A. Statement I – FALSE; Statement II – FALSE.

B. Statement I – TRUE; Statement II – TRUE.
C. Statement I – TRUE; Statement II - FALSE.
D. Statement I – FALSE; Statement II - TRUE.

4. It comprises the plan of organization and the procedures and records that are concerned with the safeguarding
of assets and the reliability of financial records.
A. Financial Plan.
B. Accounting Control.
C. Financial Control.
D. Auditing Procedures.

5. Which of the following statement is TRUE?

a. Competence and integrity of personnel is not a factor in over-all control environment.
b. An independent auditor should consider a comprehensive budgeting process with close monitoring of
variations between the budget and actual results in his examination.
c. The independent auditor does not need to review the internal auditors' activities in establishing his
audit plan.
d. Because of the volume and complexity of transactions associated with airline operations, the auditor
can expect to encounter the use of Enterprise Resource System.

6. The types of financial applications that the auditor may encounter in the airline industry are the following
except for:
a. Operational analytical review applications on aircraft maintenance and custody of inventory and fixed
assets.
b. Sales audit applications, including matching of passenger tickets lifted with tickets sold, testing of fare
computations and any applicable commissions, and segregating and billing of interline transactions.
c. Payroll applications to effectively control and prepare complex flight payrolls.
d. Revenue applications utilizing sophisticated statistical sampling techniques to determine earned
revenue.
7. Which of the following ratios that is useful in auditor’s analysis for significant portion of passenger service
expense varying with passenger traffic volumes:
A. Flight equipment maintenance/total hours flown.
B. Flight attendants' salaries and expenses/revenue passenger miles.
C. Fuel and oil expense/total block hours.
D. Flight crew salaries and expenses/total block hours.

8. In segment information as part of Auditing Standards, the tests of underlying accounting records normally
applied in an examination of financial statements should have appropriate classifications for Airline
revenues, operating expenses and identifiable assets, except for:

A. The test of the disbursements and payroll records should include procedures to test the distribution of
direct expenses to the various segments or entities.
B. The test of the enterprise's revenue records should include procedures to test the classification and
proration of revenue among the segments or entities.
C. The test for available comparative cost data from independent external public sources as a powerful tool
for the auditor.
D. The test of fixed asset records should include procedures to identify those fixed assets that are directly
attributable to a segment or entity.

9. Which of the following statement is FALSE?

A. Airline revenue accounting is to recognize revenue when the carrier provides the transportation service
and thereby completes the earnings process.  
B. Airline revenue accounting is to record unearned revenue when a ticket is sold and scheduled service is at
a later date.  
C. The task for airline revenue accounting is three-fold in character.
D. Revenue recognition involves the quantification for financial statement presentation of four major balances
related to transportation revenues: earned revenue, unearned revenue, accounts receivable, and
accounts payable.

10. Tickets may be sold by airline ticketing agents at airports or other locations or by travel agents. Tickets
may also be written by nonairline organizations using air carrier ticket stock from contracting airlines.
Tickets may be paid for in cash, by check, by various credit cards, by government transportation request
(GTR), or by the exchange of a previously purchased ticket.
A. Ticketing Procedures.
B. Interline Accounting.
C. Ticketing Recognition.
D. Airline Revenue.

11. Air traffic liability (ATL) is:

a. to recognize revenue when the carrier provides the transportation service and thereby completes the
earnings process.
b. carriage of any person or property (other than property owned by the carrier) without compensation.
c. when the tickets were sold by another carrier and the service was provided by the airline.
d. the value of unused transportation sold by the reporting air carrier for transportation to be provided by the
carrier selling the ticket and for transportation that may be provided by other air carriers.

12. Interline Accounting is:

a. to recognize revenue when the carrier provides the transportation service and thereby completes the
earnings process.
b. carriage of any person or property (other than property owned by the carrier) without compensation.
c. when the tickets were sold by another carrier and the service was provided by the airline.
d. the value of unused transportation sold by the reporting air carrier for transportation to be provided by the
carrier selling the ticket and for transportation that may be provided by other air carriers.

13. Statement I: If a passenger does not want to use a ticket and does not have an alternative itinerary, a
refund is required.
Statement II: If a ticket is surrendered in place of another ticket, for a different route or for a different
airline with the same fare, a reissue/even exchange is required.
Statement III: If a ticket is surrendered in place of another ticket with a lower fare, a reissue/additional
charge to the passenger is required.
Statement IV: If a ticket is surrendered in place of a ticket with a higher fare, a reissue/refund is required.
 a. Statements I, II & IV are TRUE, III is FALSE
b. Statements I, II are TRUE, III & IV are FALSE
c. All statements are TRUE.
d. All statements are FALSE.

14. Which of the following comes closest to outlining the auditors' responsibility for considering internal control
in all financial statement audits?
a. An understanding of the control environment, information and communication, risk assessment and
monitoring is necessary; an understanding of control activities is only necessary for areas in which the
auditor is performing tests of controls.
b. The auditor must obtain an understanding of each of the five internal control components sufficient to
assess the risks of material misstatement for the audit.
c. When tests of controls have been performed, control risk must be assessed at a level less than the
maximum.
d. An understanding of the control environment is necessary, but no understanding of the other components
is necessary unless control risk is to be assessed at a level less than the maximum.

15. BONUS Trivia Question! Identify the 2013 television show from where the quote “Yes, all men must die.
But we are not men.” originated.
a. Vikings.
b. Game of Thrones.
c. The Tudors.
d. Spartacus.

TRUE OR FALSE. 15 pts

1. The most unusual characteristic of the airline industry is its revenue cycle where sales may be made at
numerous locations by either the carrier or third parties (travel agents or other carriers). TRUE

2. The revenue recognition principle in airline industry is generally simple as a result of volume transactions to be
processed. FALSE

3. Although unique to the airline industry, an internal audit group may be an integral factor to be considered by
the auditor in his evaluation of internal control. FALSE

4. The auditor typically emphasizes the comparison of financial information with anticipated and prior-year results.
TRUE

5. Through the study of certain operating data and statistics, the auditor can consider revenue trends, aircraft
efficiency, capacity utilization, labor productivity, unit costs and profitability, and return on investment. TRUE

6. In an auditor’s analysis of operating expense variations, the auditor focuses primarily on three significant costs:
salaries and wages, fuel, and electricity expenses. FALSE

7. In analyzing flight operation expense variations, a useful bench mark is the number of block hours per day for
the aircraft, because this measures how effectively the carrier is using its available capacity. TRUE

8. The passenger revenue yield for a carrier is the product of a mathematical calculation where Revenue
passengers enplaned multiplied by average passenger trip lengths is divided by the Scheduled passenger
revenues. FALSE

9. When airline tickets usually are issued in advance of the scheduled transportation date, the ticket sales date
coincides with the revenue recognition date, also referred to as the service date. FALSE

10. A large portion of airline industry ticket sales is generated through travel agencies. TRUE

11. To analyze the major airline companies, external users resort to Traditional Financial Ratios and Traditional
Airline-Specific Measures and Ratios. TRUE

12. The objective of financial statement analysis is to use projected accounting data to help in predicting how the
firm will be valued in the future. FALSE

13. International Civil Aviation Organization (ICAO) and the International Air Transport Association (IATA) are the
fundamental sectors which shape the policies related to economic, regulatory and technical matters about airline
industry worldwide. TRUE
14. When a passenger ticket is sold, the selling carrier records a cash receipt or account receivable and earned
transportation revenue. FALSE

15. Revenue accounting for air cargo concerns the determination of what charges should be paid by whom for the
air freight services performed. TRUE