Ch. 13

In a first year audit, auditors must get comfortable with the _____________ balances in property. A. Beginning B. Current C. New D. Prior-year E. Summary

A. Beginning

Most of the work on property can be done _______________ the balance sheet date. A. After B. Before C. Close to D. Near E. Subsequent to

B. Before

In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to? A. Valuation. B. Existence. C. Rights. D. Completeness.

B. Existence

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: A. Increase in insurance coverage. B. Inspection of equipment and reconciliation with accounting records. C. Verification of liens, pledges, and collateralizations. D. Accounting for work orders.

B. Inspection of equipment and reconciliation with accounting records

Which of the following is the best evidence of real estate ownership at the balance sheet date? A. Original deed held in the client's safe. B. Paid real estate tax bills. C. Title insurance policy. D. Closing statement.

B. Paid real estate tax bills

To achieve effective internal control over fixed-asset additions, a company should establish procedures that require: A. capitalization of the cost of fixed-asset additions in excess of a specific dollar amount. B. performance of recurring fixed-asset maintenance work solely by maintenance department employees. C. authorization and approval of major fixed-asset additions. D. classification as investments of those fixed-asset additions that are not used in the business.

C. Authorization and approval of major fixed-asset additions

An auditor observes new equipment while walking around a client's factory and vouches the new equipment to schedules of property, plant, and equipment that support the information in the financial statements. Which assertion is supported by the evidence obtained? A. Existence. B. Rights and obligations C. Completeness D. Valuation and allocation

C. Completeness

While testing property at an interim date, _________________ can be tested in coordination with property. A. Cash B. Debt C. Depreciation D. Equity E. Nothing else

C. Depreciation

_____________ assets can be audited at an interim date. A. All B. No C. Intangible

C. Intangible

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts? A. The estimated remaining useful lives of plant assets were revised upward. B. The prior year's depreciation expense was erroneously understated. C. Plant assets were retired during the year. D. Overhead allocations were revised at year-end.

C. Plant assets were retired during the year

An effective procedure for identifying unrecorded retirements of equipment is to: A. Foot related property records. B. Recalculate depreciation on the related equipment. C. Select items of equipment in the accounting records and then locate them in the plant. D. Select items of equipment and then locate them in the accounting records.

C. Select items of equipment in the accounting records and then locate them in the plant

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: A. All transactions resulting in the ending balance. B. Tests of controls over disposals. C. Transactions that occurred during the year. D. Performing analytical procedures on beginning balances of the accounts.

C. Transactions that occurred during the year

A client has disposed of several pieces of manufacturing equipment at a significant gain. This raises questions as to which assertion in regard to property, plant, and equipment? A. Existence B. Rights and obligations C. Valuation and allocation D. Completeness

C. Valuation and allocation

A normal audit procedure is to analyze the current year repairs and maintenance accounts to provide evidence in support of the audit proposition that: A. non capitalizable expenditures have been properly expensed. B. expenditures for fixed assets have been recorded in the proper period. C. capital expenditures have been properly authorized. D. expenditures for fixed assets have been capitalized.

D. Expenditures for fixed assets have been capitalized

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? A. Depreciation. B. Accounts Payable. C. Cash. D. Repairs and Maintenance.

D. Repairs and Maintenance

When property is tested at an interim date, audits must roll forward to the _____________ date. A. Closest B. Month-end C. Next D. Quarter-end E. Year-end

E. Year-end

T/F Better evidence of continuing ownership of property is provided by examination of the deed

False

T/F The auditor's approach to the audit of property, plant, and equipment largely results from the fact that many transactions occur

False

T/F The auditor's principal objective in analyzing depreciation expense is to discover items that should have been capitalized

False

T/F An important control for plant and equipment is the plant and equipment budget.

True

T/F In the audit of depletion the auditors must often rely on the work of specialists

True

T/F Material purchases of assets from an affiliated company should be disclosed in the financial statements.

True

T/F The auditors typically vouch major additions to plant and equipment recorded during the period under audit.

True