Assurance Chpt 14

Accounts receivable and inventory provide economic benefits for less than a year and are therefore classified as ___ assets

Current

The auditor can test the ___ and ____ of insurance policies by sending a confirmation to the entity's insurance brokers.

Existence, Completeness

True or false: Control activities should be in place for all maintenance or improvement transactions, regardless of size.

F

True or false: Control activities should be in place for all maintenance or improvement transactions, regardless of size. True false question. True False

F

True or false: Each month, entity personnel should prepare a journal entry to recognize the unexpired portion of prepaid insurance.

F

True or false: Substantive analytical procedures are generally useful in gathering sufficient, appropriate evidence regarding the assertions of primary interest for intangibles.

F

Which of the following is a procedure the auditor can use to gain assurance about the completeness assertion for property, plant, and equipment? Multiple choice question. Obtaining a lead schedule, footing the lead schedule, agreeing individual accounts to the general ledger. Select a sample of assets from the property, plant, and equipment subsidiary ledger and vouch them to supporting documents such as vendor invoices. Physically examine a sample of assets and trace them into the property, plant, and equipment subsidiary ledger.

Physically examine a sample of assets and trace them into the property, plant, and equipment subsidiary ledger.

When impairment testing intangibles, a(n) _____ test involves similar computations as those used to determine fair value.

Quantitative

Why are lease transactions considered a complex accounting issue? Multiple select question. Subjectivity involved in assessing capitalization criteria Proper cost accumulation Difficultly verifying trade-in value. Complexity of the capitalization decisions

Subjectivity involved in assessing capitalization criteria Complexity of the capitalization decisions

True or false: Prepaid expenses are typically processed through the purchasing process.

T

True or false: Tests of details of balances may be necessary when substantive analytical procedures indicate the account balance may be misstated. True false question. True False

T

True or false: Types of property, plant, and equipment transactions include leasing and depreciation. True false question. True False

T

Intangible asset: Multiple select question. accounting rules are complex transactions are difficult to audit useful lives are established by law fair value determination is often done by valuation specialists

accounting rules are complex transactions are difficult to audit fair value determination is often done by valuation specialists

The major current assets included in the financial statements of many entities are ______. Multiple select question. prepaid rent accounts receivable inventory land

accounts receivable inventory

Obtaining a lead schedule and detailed schedules for additions and dispositions, footing the lead schedule, agreeing individual accounts to the general ledger and testing the detailed schedules is done to verify ______. Multiple choice question. cutoff rights and obligations accuracy completeness

accuracy

Comparing detailed records in the subsidiary ledger with the existing capital assets is done to ensure that ______. Multiple choice question. the entity has the rights to the capital assets all capital assets are recorded the assets are being properly depreciated all capital assets were authorized

all capital assets are recorded

If the beneficiary of an insurance policy is someone other than the entity paying premiums on the policy, this could indicate ______. Multiple select question. that insurance expense is understated an unrecorded liability that another party has a claim against the insured assets that the unexpired portion of prepaid insurance is overstated

an unrecorded liability that another party has a claim against the insured assets

The effectiveness of the control activities in the purchasing process should ensure that new insurance policies ______. Multiple select question. have a proper expiration date are properly authorized properly list beneficiaries are properly recorded

are properly authorized are properly recorded

General categories of intangible assets include ______. Multiple select question. artistic marketing customer investments

artistic marketing customer

When an auditor is considering the significant management assumptions used in determining fair value, the auditor is most likely ______. Multiple choice question. ensuring that all identifiable asset categories are separately valued assessing control risk for impairment testing assessing control risk in the business acquisition process

assessing control risk for impairment testing

Accounting standards describe different acceptable valuation methods for intangible assets, but if a market price is not available, they all rely heavily on ______. Multiple select question. estimation likelihood assessments initial asset cost assumptions

assumptions estimation likelihood assessments

Capital asset authorizations should be in place ______. Multiple select question. for all routine maintenance transactions for purchased, but not for leased assets based on the purchase price of assets for the sale or disposition of assets to identify assets no longer used in operations

based on the purchase price of assets for the sale or disposition of assets to identify assets no longer used in operations

Intangible asset transactions and initial valuation are typically processed through the entity's _____ ________ processes.

business acquisition

As part of the testing of the purchasing process, the _____ of a transaction into the correct property, plant, and equipment account is normally examined.

classification

When the auditor checks to ensure that different types of insurance are properly allocated to the various expense accounts (s)he is testing for proper

classification

When the auditor determines different types of insurance expense are properly allocated to the various insurance expense accounts, the auditor is testing ______. Multiple choice question. rights and obligations valuation existence and completeness classification

classification

When the auditor performs testing to ensure that intangible assets are properly identified and are accounted for separately, the auditor is most likely testing ______. Multiple choice question. valuation classification rights and obligations existence and completion

classification

Ensuring that the entity's impairment-testing procedures include all intangible assets is the auditor's primary concern relative to the ______ assertion. Multiple choice question. completeness rights and obligations valuation classification

completeness

If the auditor physically examines a sample of assets and traces them into the property, plant and equipment subsidiary ledger, (s)he has sufficient evidence supporting the assertion.

completeness

The control activities used in the purchasing process for ensuring _______ provide some assurance that all capital asset transactions are properly recorded

completeness

Substantive analytical procedures used to test prepaid insurance include ______. Multiple select question. reviewing capital budgets and comparing amounts spent for budgeted items to the authorized amounts computing the ratio of insurance expense to assets or to sales and comparing it with prior years' ratios. computing an estimate of the ending account balances using the current premium and amount of time remaining on the policy at the end of the period

computing the ratio of insurance expense to assets or to sales and comparing it with prior years' ratios. computing an estimate of the ending account balances using the current premium and amount of time remaining on the policy at the end of the period

Once an intangible asset is determined to be impaired the ______. Multiple choice question. current book value of the asset must be reduced to zero current fair value must be determined to compute the impairment loss auditor is required by auditing standards to have a valuation expert re-value the asset

current fair value must be determined to compute the impairment loss

On most engagements, _______ is tested as part of the audit work in accounts payable and accrued expenses

cutoff

With regard to property, plant and equipment, when an auditor examines a sample of vendor invoices from a few days before and after year-end, (s)he is most likely testing ______. Multiple choice question. rights and obligations cutoff existence completeness

cutoff

Factors to be considered in a qualitative assessment of tangible asset impairment include: Multiple select question. declining trends in earnings used to value the asset computations used to determine the current fair market value of the asset cost increases that could negatively affect future cash flows used to value the asset general economic, legal or regulatory factors that could negatively affect the asset

declining trends in earnings used to value the asset cost increases that could negatively affect future cash flows used to value the asset general economic, legal or regulatory factors that could negatively affect the asset

Types of property, plant, and equipment transactions that may occur include ______. Multiple select question. installation depreciation leasing disposition

depreciation leasing disposition

Difficult-to-audit transactions include those related to ______. Multiple select question. depreciation donated assets leased assets nonmonetary exchanges

donated assets nonmonetary exchanges

As part of the testing of rights and obligation for property, plant, and equipment, the auditor might ______. Multiple choice question. physically examine a sample of assets and trace them into the property, plant, and equipment subsidiary ledger examine property deeds or title documents for proof of ownership test the purchasing process to ensure proper cutoff obtain a listing of all major additions and vouch them to supporting documents such as vendors' invoices

examine property deeds or title documents for proof of ownership

Examining customer order information or sending confirmations to customers requesting information on their order status address the ______ assertion as related to customer backlogs. Multiple choice question. existence impairment classification completeness

existence

The auditor normally tests for the ________ of intangible assets at the time they are acquired by examining legal documentation support the validity of the asset.

existence

When an auditor sends a confirmation to the entity's insurance broker requesting information on each policy number, coverage, expiration date, and premium, the auditor is testing ______. Multiple choice question. rights and obligations classification existence and completeness cutoff

existence and completeness

With the movement towards more _____ ______ accounting, auditors needs improved understanding of valuation issues.

fair value

A formal control process to ensure adequate segregation of duties related to property, plant, and equipment is likely when an entity ______. Multiple select question. reconciles the subsidiary ledger with the existing capital assets at the end of each period has few capital asset purchases has large capital projects under construction purchases large quantities of machinery

has large capital projects under construction purchases large quantities of machinery

If a test indicates a decline in the remaining market value of an intangible asset below its net recorded or carrying amount a(n) _____ _____ is recognized in the current period.

impairment expense

If the auditor has detected asset misstatements in prior audits, the assessment of _______ risk should be set higher than if few or no misstatements have been found in prior years

inherent

Judgment is required to ______. Multiple select question. record internally generated intangibles as assets on the balance sheet initially value assets acquired as part of the acquisition of another company determine useful lives for patents and copyrights perform intangible asset impairment testing

initially value assets acquired as part of the acquisition of another company determine useful lives for patents and copyrights perform intangible asset impairment testing

A record of all insurance policies in force may be maintained in a(n)

insurance register

Assets that provide economic benefit for longer than a year but lack physical substance are ____ assets.

intangible

For most entities, the account balance most likely to be the highly material is ______. Multiple choice question. prepaid expenses inventory intangible assets deferred charges

inventory

The complex accounting issues often involved in property, plant, and equipment includes issues surrounding ______. Multiple select question. donated assets depreciation self-constructed assets lease accounting

lease accounting self-constructed assets

When a creditor has a(n) ______ on equipment, it gives the creditor the right to sell the equipment if the entity fails to meet the obligations of the loan contract.

lien

The evidence indicates that the property, plant, and equipment accounts are not materially misstated when the ______ misstatement. Multiple choice question. likely misstatement is greater than the tolerable likely misstatement is less than the tolerable tolerable misstatement is greater than the actual

likely misstatement is less than the tolerable

When the auditor determines that the ________ misstatements in the property, plant, and equipment account are less than the _________ misstatement, the evidence indicates the accounts are not materially misstated.

likely, tolerable

When few or no misstatements were found during prior year audits of property, plant, and equipment, the assessed level of inherent risk should be set ______ if the auditor detected misstatements in prior audits. Multiple choice question. higher than lower than the same as

lower than

Trademarks, brand names, and internet domain names are categorized as ______ intangible assets. Multiple choice question. marketing technology customer contract

marketing

All intangible assets ______. Multiple choice question. are considered to have finite lives must be amortized over time must be tested for impairment at least annually are considered to have indefinite lives

must be tested for impairment at least annually

The auditor should verify the assets that make up the beginning balance of the entity's property, plant and equipment accounts on ______ engagements. Multiple choice question. new all ongoing

new

Internally generated intangibles are ______. Multiple choice question. amortized to expense over the periods benefited recorded at the cost incurred to generate them considered to have indefinite useful lives not recorded as assets on the balance sheet

not recorded as assets on the balance sheet

Large capital asset transactions generally ______. Multiple select question. take place completely within the purchasing process occur after passing through a specific capital-budgeting process occur after they meet predetermined rate of return criteria

occur after passing through a specific capital-budgeting process occur after they meet predetermined rate of return criteria

The control activities for the ______ and ______ assertions of property management are normally part of the purchasing process.

occurrence, authorization

The auditor can focus his or her audit efforts on the current year activity in the entity's property, plant, and equipment accounts on _____ engagements.

ongoing

To test existence of property, plant, and equipment, the auditor ______. Multiple select question. physically examines a sample of assets and traces them into the property, plant, and equipment subsidiary ledger physically examines the capital assets obtains a listing of all major additions and vouches them to supporting documents obtains a lead schedule, foots the lead schedule, agrees individual accounts to the general ledger

physically examines the capital assets obtains a listing of all major additions and vouches them to supporting documents

When testing property, plant, and equipment, the auditor will most likely test the design and operating effectiveness of key controls for ______ entities. Multiple choice question. public private all

public

Prepaid expenses are typically processed through ____ the process.

purchasing

When an entity has disposed of few assets, an auditor would be most likely to perform additional audit procedures when the: Multiple choice question. capital budget has been reviewed and amounts spent are in line with amounts budgeted ratio of depreciation expense to the related property, plant, and equipment accounts is less than in prior years ratio of insurance expense to the related property, plant, and equipment accounts is line with prior years

ratio of depreciation expense to the related property, plant, and equipment accounts is less than in prior years

When the auditor addresses the recognition of depreciation expense, (s)he must consider ______. Multiple select question. whether the asset is from a capital lease or outright purchase reasonableness of the asset's estimated life expected salvage value depreciation method used for book and tax purposes

reasonableness of the asset's estimated life expected salvage value depreciation method used for book and tax purposes

When testing the valuation of intangible assets, the auditor must also test for the ______. Multiple choice question. market price of existing intangible assets initial cost of internally generated intangibles reasonableness of useful lives used for amortizing intangible assets

reasonableness of useful lives used for amortizing intangible assets

Valuation issues the auditor must consider in regards to property, plant and equipment include ______. Multiple select question. the ability to renew capital leases that are expiring in the coming year recognition of depreciation expense possible impairment due to events or changes in circumstances. recoverability of cash flows from use and disposal.

recognition of depreciation expense possible impairment due to events or changes in circumstances. recoverability of cash flows from use and disposal.

At the end of each month, entity personnel should prepare a journal entry to ______. Multiple choice question. report the appropriate beneficiary designation on insurance policies update the insurance register recognize the actual amount of insurance coverage purchased recognize the expired portion of prepaid insurance

recognize the expired portion of prepaid insurance

It is generally more cost effective for the auditor is follow a substantive strategy for auditing the property management process when an entity is ______. Multiple choice question. relatively small a private company relatively large a public company

relatively small

When auditing property, plant, and equipment, the auditor will most likely conduct substantive analytical procedures and direct tests of the account balances for ______. Multiple choice question. relatively large entities relatively small entities all entities, regardless of size

relatively small entities

When a private entity has a formal control system over the property management process, the auditor may choose to follow a(n) ______ strategy and test controls

reliance

Pending litigation is a concern for the auditor when testing intangible asset ______. Multiple choice question. valuation rights and obligations classification existence and completeness

rights and obligations

When an auditor examines supporting legal and contractual documentation associated with intangible assets, the auditor is most likely testing ______. Multiple choice question. rights and obligations existence and completeness valuation classification

rights and obligations

When the auditor sends a confirmation to the insurance broker requesting identification of the beneficiary of the insurance policy the auditor is most likely testing ______. Multiple choice question. rights and obligations classification valuation existence and completeness

rights and obligations

Computing the ratio of depreciation expense to the related property, plant, and equipment accounts and comparing to prior years' ratios are examples of ______. Multiple choice question. substantive analytical procedures tests of details of transactions tests of controls

substantive analytical procedures

When considering management policies and procedures for impairment testing, the auditor should ensure that management ______. Multiple select question. documents the costs of internally generated intangibles considers changes in how the asset is used verifies policies are in compliance with GAAP tests for impairment at least annually

tests for impairment at least annually considers changes in how the asset is used verifies policies are in compliance with GAAP

The principal substantive evidence regarding intangible assets is typically obtained via ______. Multiple choice question. analytical procedures tests of controls tests of details

tests of details

When the auditor is testing classification related to intangible assets, the auditor is most likely concerned ______. Multiple select question. with examining legal documentation to verify the entity's rights to the assets that different types of intangible assets are properly identified that there is no pending litigation regarding the entity's legal rights to the assets that different types of intangible assets are accounted for separately

that different types of intangible assets are properly identified that different types of intangible assets are accounted for separately

Tests of details of balances for prepaid insurance may be necessary when ______. Multiple select question. the auditor suspects misstatements based on prior years' audits substantive analytical procedures indicate the account balance may be misstated the auditor cannot obtain the insurance register tests of controls indicate the account balance may be misstated

the auditor suspects misstatements based on prior years' audits substantive analytical procedures indicate the account balance may be misstated

A creditor is most likely to have a lien on a company's equipment when ______. Multiple choice question. the company's insurance policy has lapsed there are deferred charges associated with the equipment the equipment is used as collateral for a loan

the equipment is used as collateral for a loan

By verifying the unexpired portion of prepaid insurance, the auditor also verifies ______. Multiple choice question. the total amount of insurance expense there are no unrecorded liabilities the entity is the beneficiary of the policy the entity's insurance coverage is adequate

the total amount of insurance expense

The existence of adequate segregation of duties for property management depends on ______. Multiple choice question. the volume and significance of transactions processed the number of employees in the company management policies for the processing of property transactions

the volume and significance of transactions processed

The prepaid insurance account is often verified using substantive analytical procedures because ______. Multiple select question. an estimate of the ending balance of prepaid insurance is easy to compute there are few transactions the amount reported in the financial statements for prepaid insurance is usually immaterial all transactions are processed through the purchasing process

there are few transactions the amount reported in the financial statements for prepaid insurance is usually immaterial

When the auditor wishes to rely on controls in the business acquisition process, (s)he must ______. Multiple select question. understand key controls document key controls establish an accounting and reporting process for business acquisitions test the design and operating effectiveness of key controls

understand key controls document key controls test the design and operating effectiveness of key controls

The auditor examines vendor invoices and other supported documents used to establish the recorded cost of property, plant and equipment as part of testing the _______ assertion for property, plant and equipment.

valuation

The most important assertion associated with intangible assets is ______. Multiple choice question. classification existence and completeness valuation rights and obligations

valuation

When the auditor considers the premium paid and the term of the policy, the auditor is most likely concerned with ______. Multiple choice question. existence and completeness classification valuation rights and obligations

valuation

When an auditor conducts detailed audit work on the construction-in-process account, including ensuring that interest is properly capitalized, (s)he is most likely testing ______. Multiple choice question. rights and obligations existence valuation and allocation

valuation and allocation

When testing existence, the auditor must ______. Multiple select question. ensure than no lease transactions were recorded as assets verify capital assets actually exist verify dispositions were properly authorized and recorded

verify capital assets actually exist verify dispositions were properly authorized and recorded

Testing the classification assertion includes ______. Multiple select question. verifying purchases were recorded in the correct account examining each material lease agreement ensuring that no repairs or maintenance costs were capitalized

verifying purchases were recorded in the correct account examining each material lease agreement