Audit Chapter 13 Pre-work/HW Concept Questions

Which of the following is an internal control weakness related to factory equipment?

All purchases of factory equipment are required to be made by the department in need of the equipment

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic:

Inspection of equipment and reconciliation with accounting records

The auditors may conclude that depreciation charges are insufficient by noting:

Excessive recurring losses on assets retired

An auditor performs a procedure in which the volume was produced by a manufacturing entity is compared to the capacity of the entity's manufacturing equipment to determine if the entity is operating within its relevant range. This procedure will provide evidence about which assertion?

Existence

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts?

A property, plant, and equipment cutoff error near year-end has a more significant effect on net income

The audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? A. Accumulated Depreciation. B. Cost of Goods Sold. C. Purchase Returns and Allowances. D. Purchase Discounts.

A. Accumulated Depreciation

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 company may not actually own property recorded as an asset, instead the company may have rights to the asset under the terms of a _________.

Capital Lease

An auditor is recalculating depreciation on real property acquired during the year. Which of the following documents will provide the most relevant information regarding a property's depreciable base?

Closing Statement

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?

Completeness

When auditing an entity's reported amount for property, plant, and equipment, which assertion will be supported with evidence obtained by the auditor during an examination of the repairs and maintenance expense account?

Completeness

The auditors are most likely to seek information from the plant manager with respect to the:

Existence of obsolete machinery

Possession of a deed is not proof of present ________ of property.

Ownership

Good evidence of ownership of property often is found by examining __________ bills.

Property Tax

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?

Repairs

A dollar minimum ordinarily should be established to be used by accounting personnel for distinguishing between capital and ____________ expenditures.

Revenue

An auditor was satisfied that the carrying value of factory equipment was fairly stated as of the beginning of the period. During the period, the entity had several transactions involving the purchase and disposal of equipment. Which of the following would be the most effective in providing evidence that all equipment reported in the financial statements actually exists?

Select items from the accounting records and observe them in the entity's factory

An effective procedure for identifying unrecorded retirements of equipment is to:

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

A company should maintain a _________ for plant and equipment, consisting of a separate record for each unit of property.

Subsidiary Ledger

To assure accountability for fixed asset retirements, management should implement an internal control that includes:

Utilization of serially numbered retirement work orders

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?

Valuation and Allocation