CHAPTER 13 HW

For the audit of a continuing NONPUBLIC client, the emphasis of the testing for Property account is on:

Transactions that occurred during the year

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. "yeah go ahead and touch the boilers and see if they are working"

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 factory 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

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment?

Accumulated depreciation Look for ANY/ALL Debit entries that hit this account YOU SHOULDN'T GET THIS WRONG, PROFESSOR MENTIONED THIS 100X'S

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

Existence of obsolete Machinery

Treetop corporation acquired a building and arranged mortgage financing during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the related

Deed

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

Excessive recurring losses on assets retired Keyword INSUFFICIENT means Not enough

In testing PPE balances, an auditor may select recorded additions in the analysis of PPE and inspect the actual asset involved. Which management assertion is this procedure most directly related to:

Existence

a search for overstated PPE purchases would most likely include

PPE AR, purchase discounts, and R&M having NOTHING to do with overstated PPE

Analysis of this account is LEAST likely to reveal evidence relating to recorded retirement of equipment

PURCHASE RETURNS & ALLOWANCES You would normally look at (IF QUESTION WAS MOST LIKELY): ACCUMULATED DEPRECIATION INSURANCE EXPENSE PPE

This explanation will most likely satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts

Plant assets were retired during the year. AGAIN, IF YOU GET THIS WRONG, KILL YOURSELF Auditors dont really care about the following explanations: -The estimate remaining useful lives of plant assets were revised upward -The prior years depreciatioin expense was erroneously understated. -Overhead allocations were revised at year end

The following is NOT an overall test of the annual provision for depreciation expense

Test deductions from accumulated depreciation for assets purchased during the year.

This is the account that should be reviewed by the auditors to gain reasonable assurance that additions to PPE are not understated:

What is "Repairs"?

The following statement is NOT typical of PPE as compared to most curent asset accounts

A PPE cuttoff error near year-end has a more significant effect on net income

The audit of intangible assets typically involves

VOUCHING THE COST OF THE ASSETS TESTING ALLOCATION METHODS

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

Utilization of serially numbered retirement work orders NOTE: Anytime you hear continuous analysis it is not the answer