Smart book chapter 13

Auditors need to test assets acquired from related parties because of the risk the transactions have been recorded at ______. Multiple choice question. fair value inflated amounts historical cost

inflated amounts

Auditors analyze repairs and maintenance expense accounts to ______. Multiple choice question. verify the accuracy of the account identify items that should be expensed look for items that should be capitalized

look for items that should be capitalized

Evidence of legal ownership of property, plant, and equipment include ______. Multiple choice question. receipts for deposits to a mortgagee rental payments for the property property tax bills

property tax bills

Adequate financial statement presentation and disclosure requires the basis of ______ should be explicitly stated.

valuation

Which subgroup of property, plant, and equipment is subject to depreciation? Multiple choice question. Buildings, machinery, equipment, and land improvements Natural resources Land such as property used in the operation of the business

Buildings, machinery, equipment, and land improvements

True or false: A typical analytical procedure for testing depreciation is to compute the ratio of depreciation expense to total expenses and compare it to last year.

False

True or false: All related-party transactions related to property, plant, and equipment must be disclosed in the notes to the financial statements.

False

For any inherent risks identified by the auditors that involve the possibility of fraud, auditors should ______. Multiple select question. design an appropriate response to the risk understand the programs and controls established by management to control the risk determine that management has established programs and controls to eliminate the risk determine the controls established by management are working effectively

design an appropriate response to the risk understand the programs and controls established by management to control the risk

Property, plant, and equipment that are permanently idle need to be ______. Multiple select question. reclassified as current assets excluded from plant and equipment classification depreciated to the balance sheet date written down to estimated realizable value

excluded from plant and equipment classification written down to estimated realizable value

Variances between plant budgets and actual expenditures for plant assets should be subject to review and approval of ______. Multiple choice question. purchasing department executives warehouse department internal audit

executives

Improper accounting techniques for property, plant, and equipment leases include all of the following except ______. Multiple choice question. recording an operating lease for assets that meet the requirements for a capital lease not capitalizing assets that were acquired under operating leases depreciating leasehold improvements over their estimated useful life when lease renewal is not assured mishandling of initial direct costs, lease incentives, and variable payments

not capitalizing assets that were acquired under operating leases

To confirm their understanding of internal control over property, plant, and equipment, auditors will ______. Multiple select question. observe segregation of duties over plant asset acquisitions review the repairs and maintenance account for expenditures that should be capitalized inspect serially numbered work orders inspect the plant and equipment budget

observe segregation of duties over plant asset acquisitions inspect serially numbered work orders inspect the plant and equipment budget

To produce an estimate of depreciation expense, auditors should list the balances in the asset accounts at the beginning of the year and then deduct any fully depreciated assets then add ______. Multiple choice question. one-half of asset additions and deduct all asset retirements not fully depreciated all asset additions and deduct all asset retirements all asset additions and deduct one-half of asset retirements not fully depreciated one-half of asset additions and deduct one-half of asset retirements not fully depreciated

one-half of asset additions and deduct one-half of asset retirements not fully depreciated

To produce an estimate of depreciation expense, auditors should list the balances in the asset accounts at the beginning of the year and then deduct any fully depreciated assets then add ______. Multiple choice question. one-half of asset additions and deduct all asset retirements not fully depreciated all asset additions and deduct all asset retirements one-half of asset additions and deduct one-half of asset retirements not fully depreciated all asset additions and deduct one-half of asset retirements not fully depreciated

one-half of asset additions and deduct one-half of asset retirements not fully depreciated

The best evidence of continuing ownership of property is ______. Multiple choice question. deeds property tax bills title insurance policies rental payments

property tax bills

intangible assets ______. Multiple select question. provide rights or economic advantages lack physical substance may qualify as current assets are nonmonetary

provide rights or economic advantages lack physical substance are nonmonetary

To test for proper authorization, receipt and recording of acquisitions, auditors should select a sample of ______. Multiple choice question. purchases of plant and equipment repairs and maintenance expenditures retirements of plant and equipment

purchases of plant and equipment

To test additions to property, plant, and equipment, auditors need to ______. Multiple select question. recompute extensions, footings, and discounts on invoices and supporting documents make certain no sales tax related to the equipment purchase has been capitalized vouch purchases to invoices and other supporting documentation check for authorization by warehouse personnel make certain all repairs and maintenance expenditures have been capitalized

recompute extensions, footings, and discounts on invoices and supporting documents vouch purchases to invoices and other supporting documentation

Disclosure requirements for property, plant, and equipment include all of the following except ______. Multiple choice question. total acquisitions and retirements for the current year method(s) of computing depreciation accumulated depreciation by major class or total balances of major classes of depreciable assets

total acquisitions and retirements for the current year

Obtaining a summary analysis of changes in property owned and reconciling it to ledgers addresses the primary audit objective of____ .

valuation

Which subgroup of property, plant, and equipment is subject to depletion? Multiple choice question. Natural resources Buildings, machinery, equipment, and land improvements Land

Natural resources

Auditors prepare this working paper to determine that the totals of recorded accumulated depreciation agrees with the applicable general ledger controlling accounts. Multiple choice question. Summary analysis by account List of retirements during the year List of acquisitions during the year

Summary analysis by account

Which of the following statements is false? Multiple choice question. Vouching additions to the property, plant, and equipment accounts is one of the most important substantive tests. The vouching process utilizes a working paper analysis of the general ledger control accounts. The extent of the vouching is dependent upon the auditors' assessment of inherent risks for the existence and valuation of the assets

The extent of the vouching is dependent upon the auditors' assessment of inherent risks for the existence and valuation of the assets

Which of the following statements are correct? Multiple select question. The physical inspection of plant assets may be limited to major units acquired during the year. When a complete inventory of property, plant, and equipment is made, the auditors' role is observer. Taking a complete physical inventory of property, plant, and equipment is a common audit event.

The physical inspection of plant assets may be limited to major units acquired during the year. When a complete inventory of property, plant, and equipment is made, the auditors' role is observer.

The key audit working paper for property, plant, and equipment is ______. Multiple choice question. an analysis of repairs and maintenance accounts tests of depreciation an analysis of current year's additions and retirements a summary analysis of assets and accumulated depreciation accounts

a summary analysis of assets and accumulated depreciation accounts

The summary analysis of property, plant, and equipment emphasizes ______ under audit. Multiple choice question. all changes during the year a sample of changes during the year balances as of the year-end

all changes during the year

Audit procedures for property, plant, and equipment typically performed at an interim date 2 months before year-end include ______. Multiple select question. an analysis of acquisitions for the first 10 months of the year an impairment test of intangible assets tests of depreciation expense as of year-end considering internal control over property, plant, and equipment

an analysis of acquisitions for the first 10 months of the year considering internal control over property, plant, and equipment

Auditors review rental revenue accounts and compare amounts to lease agreements and ______. Multiple choice question. depreciation records cash records impairment calculations

cash records

To determine if the company used a systematic method to allocate costs over the assets' useful lives, auditors review depreciation policies in ______. Multiple choice question. auditing standards manual financial statement disclosures company manuals

company manuals

When analyzing repairs and maintenance expense accounts, auditors should be aware of the company's ______ policy. Multiple choice question. depreciation valuation capitalization expense

capitalization

When the cost of self-constructed asset exceeds the cost of similar assets that could be purchased, the excess costs should be ______. Multiple choice question. treated as an extraordinary loss when discovered expensed in the period that construction is completed added to the cost of the asset and depreciated over the useful life

expensed in the period that construction is completed

Auditors' steps to examine operating properties subject to depletion include ______. Multiple select question. relying on management's estimate for reasonableness testing the mathematical accuracy of the client's computations determining whether depletion has been recorded in accordance with generally accepted auditing standards determining whether depletion has been recorded consistently

testing the mathematical accuracy of the client's computations determining whether depletion has been recorded consistently

Ratios used by auditors to judge the overall reasonableness of recorded amounts for plant and equipment include ______. Multiple select question. total cost of plant assets ÷ cost of goods sold total cost of plant assets ÷ annual output in dollars or other units total cost of plant assets ÷ net operating income cost of plant assets acquired during the year ÷ total cost of plant assets

total cost of plant assets ÷ cost of goods sold total cost of plant assets ÷ annual output in dollars or other units

Key controls applicable to plant and equipment are ______. Multiple select question. use of capital works orders to record advance authorizations of all plant and equipment acquisitions a policy requiring all purchase of plant and equipment to be handled by the warehouse department an annual plant budget used to forecast and control acquisitions and retirements

use of capital works orders to record advance authorizations of all plant and equipment acquisitions an annual plant budget used to forecast and control acquisitions and retirements

To test depreciation auditors may ______. Multiple select question. compare accumulated depreciation credits with depreciation expense debits look for excessive depreciation of fully depreciated assets compare current year rates to prior years and investigate variances compare retirements for the current year to retirements for last year

compare accumulated depreciation credits with depreciation expense debits look for excessive depreciation of fully depreciated assets compare current year rates to prior years and investigate variances

Inspecting selected assets in the plant and tracing the assets to the detailed records provides evidence for the ______ assertion. Multiple choice question. existence completeness valuation presentation and disclosure

completeness

Auditors need to verify that the amounts in the property and equipment subsidiary ledgers agree in total with the balances in the ______. Multiple choice question. controlling general ledger accounts summary analysis working paper prior year's audit working papers

controlling general ledger accounts

Auditors need to gather evidence regarding the presentation and disclosure of property, plant, and equipment including disclosure of ______. Multiple choice question. depreciation methods related transactions rights to property, plant, and equipment

depreciation methods

To discover unrecorded retirements, auditors should ______. Multiple select question. inquire of warehouse personnel whether plant assets have been retired during the year determine if old equipment was traded in or replaced for major additions analyze the miscellaneous revenue account for cash proceeds from sales of assets investigate increases in insurance coverage

determine if old equipment was traded in or replaced for major additions analyze the miscellaneous revenue account for cash proceeds from sales of assets

The main reason auditors investigate property, plant, and equipment that has been replaced, sold, dismantled, or abandoned during the year is to ______. Multiple choice question. determine that the retirement is recorded make sure the asset is still recorded in property, plant, and equipment determine that the retirement asset was disposed of correctly

determine that the retirement is recorded

Auditors should produce an estimate of the overall annual provision of depreciation expense to ______. Multiple choice question. test for missing asset retirements test for errors in the client's calculation ensure there were no fraudulent depreciation entries determine the overall reasonableness of the expense

determine the overall reasonableness of the expense

Auditors should test for potential impairments in property, plant, and equipment by all of the following except ______. Multiple choice question. testing the process management used to develop the estimate testing the assumptions management made to develop the estimate evaluating objective estimates of the fair value of the assets developing their own estimate of fair value

evaluating objective estimates of the fair value of the assets

Assets acquired in a nonmonetary exchange should be generally be recorded at ______. Multiple choice question. fair value cost of direct materials, direct labor, and applicable overhead historical cost

fair value

For any inherent risks related to property, plant, and equipment identified by the auditors that involve the possibility of _______, auditors will ensure to understand the programs and controls established by management to control the risk

fraud

When the price a company paid to acquire another company exceeds the fair value of the identifiable net assets acquired, _____ is recorded and auditors must review it annually for impairment.

goodwill

Auditors physically inspect rental property owned by client to ______. Multiple choice question. identify property that is occupied and producing revenue identify property that may be impaired in value determine recorded lease expense is appropriate

identify property that is occupied and producing revenue

To test the accuracy of the repairs and maintenance expense accounts, auditors trace expenses to ______. Multiple select question. fixed asset subsidiary ledger depreciation records labor time records vendors' invoices

labor time records vendors' invoices

For effective internal control over property, plant, and equipment, periodic physical inventories of plant assets should be compared with the ______. Multiple choice question. serially numbered work orders for acquisitions repairs and maintenance ledger accounts budgets for acquisitions of plant assets ledger accounts for the plant assets

ledger accounts for the plant assets

For the first audit of property, plant, and equipment for a company that has never been audited but has been in business for many years, auditors should thoroughly review all ______. Multiple select question. major retirements to the property accounts since inception all repairs and maintenance expense account transactions since inception all depreciation expense account transactions since inception major additions to the property accounts since inception

major retirements to the property accounts since inception major additions to the property accounts since inception

Property, plant, and equipment that are temporarily idle ______. Multiple choice question. should be reclassified as current assets should be depreciated at accelerated rates need not be reclassified should be written down to estimated realizable value

need not be reclassified

Goodwill is ______. Multiple select question. only recorded when the price paid exceeds fair value of net assets acquired written down when impairment losses occur subject to annual amortization based on the price paid versus the book value of assets acquired

only recorded when the price paid exceeds fair value of net assets acquired written down when impairment losses occur

Intangible assets tend to be difficult to audit because of all of the following factors except ______. Multiple choice question. they are subject to amortization or impairment they lack physical substance payments made to acquire assets can be reviewed their value lies in rights or economic advantages

payments made to acquire assets can be reviewed

Beginning balances for property and equipment accounts on the summary analysis can be verified by reference to ______. Multiple choice question. current year financial statements client records the permanent file prior year's working papers

prior year's working papers

The approach typically used by auditors to audit depreciation is ______. Multiple choice question. independently develop an estimate of the amount to compare to management's estimate review and test management's process of developing the estimate review subsequent events or transactions bearing on the estimat

review and test management's process of developing the estimate

Debits to intangible asset accounts should have documentary evidence that ______. Multiple select question. appropriate amortization methods are in place rights or benefits were acquired payment was made all write-offs are authorized

rights or benefits were acquired payment was made

In assessing the risks of material misstatement and designing further audit procedures for property, plant, and equipment, auditors ______. Multiple select question. should design procedures focused on significant risks should evaluate the design of related controls and determine that they are being implemented may rely solely on analytical procedures to address the risk should consider evidence obtained in prior periods regarding the operating effectiveness of related controls

should design procedures focused on significant risks should evaluate the design of related controls and determine that they are being implemented

Due to the complexity in determining the basis for depletion for mining and oil and gas, auditors most often use ______. Multiple choice question. the work of internal auditors specialists such as mining engineers and geologists the amounts that were used in the prior year's audit

specialists such as mining engineers and geologists

Auditors' steps to examine operating properties subject to depletion include ______. Multiple select question. relying on management's estimate for reasonableness determining whether depletion has been recorded in accordance with generally accepted auditing standards testing the mathematical accuracy of the client's computations determining whether depletion has been recorded consistently

testing the mathematical accuracy of the client's computations determining whether depletion has been recorded consistently

Assets under a lease that are being improperly accounted for include the failure to record asset and liability for leases with terms of more than _____ months.

12

A key control applicable to plant and equipment is a written company policy that distinguishes between ______ expenditures and _______ expenditures.

Captial revenue

To discover unrecorded retirements, auditors should ______. Multiple select question. inquire of warehouse personnel whether plant assets have been retired during the year analyze the miscellaneous revenue account for cash proceeds from sales of assets investigate increases in insurance coverage determine if old equipment was traded in or replaced for major additions

analyze the miscellaneous revenue account for cash proceeds from sales of assets determine if old equipment was traded in or replaced for major additions

A sample of recorded retirements will be tested for proper ________ by executives written on a serially numbered retirement work order.

authorization

The depletion of timberlands is usually based on physical quantities established by ______ , a term that means the inspection of a tract of forestland for the purpose of estimating the total lumber yield. (

cruising

Compared to PPE, auditors typically spend a larger proportion of audit time on ______. Multiple choice question. stockholder's equity current assets current liabilities

current assets

If asset recovery periods are not reasonable, ______ expense may be materially misstated and the auditors will not be in a position to issue an unqualified opinion on the financial statements.

depreciation

When auditing property, plant, and equipment, auditors also gather evidence on the related accounts of ______ expense Multiple select question. depreciation repairs and maintenance office amortization

depreciation repairs and maintenance

The main reason auditors investigate property, plant, and equipment that has been replaced, sold, dismantled, or abandoned during the year is to ______. Multiple choice question. make sure the asset is still recorded in property, plant, and equipment determine that the retirement asset was disposed of correctly determine that the retirement is recorded

determine that the retirement is recorded

Because of limited number of transactions, most of the audit work on plant, equipment, and intangibles can be done at ______. Multiple choice question. interim before the year-end date field work after the year-end date the year-end date

interim before the year-end date

Auditors design test of controls and substantive procedures to substantiate the existence of property, plant, and equipment and _____ the of the related transactions.

occurence

Auditors need to perform a complete historical analysis of the property accounts for a client that has never been audited because ______. Multiple choice question. asset additions may have been recorded in property accounts retirements of property may have been credited to property accounts repair and maintenance expenses may have been capitalized

repair and maintenance expenses may have been capitalized

In assessing the risks of material misstatement and designing further audit procedures for property, plant, and equipment, some of the risks may be considered risks that require special audit consideration.

significant

Acceptable depreciation methods include ______. Multiple select question. modified de-accelerated cost recovery system sum-of-the-lives digits units of output straight-line declining-balance

units of output straight-line declining-balance

What factor(s) lead to a smaller proportion of total audit time on property, plant, and equipment compared to current assets? Multiple select question. A proper cutoff of year-end transactions is of lesser importance Usually little change in the property accounts from year to year A year-end cutoff error will greatly impact net income for the year High dollar value but few transactions

A proper cutoff of year-end transactions is of lesser importance Usually little change in the property accounts from year to year High dollar value but few transactions

Auditors review these comparisons to judge overall reasonableness of recorded amounts for plant and equipment. Multiple select question. Acquisitions for the current year with prior years. Depreciation for the current year with prior years. Retirements for the current year with future years. Repairs and maintenance expense on a monthly basis and from year to year.

Acquisitions for the current year with prior years. Repairs and maintenance expense on a monthly basis and from year to year.

Auditors review rental revenue accounts and compare amounts to lease agreements and ______. Multiple choice question. depreciation records impairment calculations cash records

cash records

Tracing items in the plant ledger to the physical assets provides evidence for the ______ assertion. Multiple choice question. completeness presentation and disclosure existence valuation

existence

Fences and parking lots are examples of ___ ____ which are subject to depreciation

land improvements

Auditors must determine if leases are properly recorded as_____ - type, direct _____or _____ leases.

sales financing operating

The physical inspection of plant assets should ______ involve taking a complete physical inventory. Multiple choice question. always sometimes never

sometimes

When an active market does not exist for a specific asset, the fair value must be determined by using a(n) _____ model, often involving discounted cash flows.

valuation

The audit of depreciation relates most directly to the audit objectives of ______. Multiple choice question. valuation or allocation presentation and disclosure existence or occurrence completeness

valuation or allocation