audit ch 12/13 hw

The auditors are most likely to seek information from the plant manager with respect to the Deferral of procurement of certain necessary insurance coverage. Adequacy of the provision for uncollectible accounts. Appropriateness of physical inventory observation procedures. Existence of obsolete machinery.

existence of obsolete mchinery

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: Existence. Completeness. Clarity. Presentation

existence

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: Want the client to schedule the physical inventory count at the end of the year. Insist that the client perform physical counts of inventory items several times during the year. Increase the extent of tests for unrecorded liabilities at the end of the year. Have to disclaim an opinion on the income statement for that year

a.

The auditor's analytical procedures will be facilitated if the client: Uses a standard cost system that produces variance reports. Segregates obsolete inventory before the physical inventory count. Corrects material weaknesses in internal control before the beginning of the audit. Reduces inventory balances to the lower of cost or market

a. use a standard cost system with variances

Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: Well-kept records of perpetual inventory are maintained. Inventory is slow-moving. Computer error reports are generated for missing prenumbered inventory tickets. Obsolete inventory items are segregated and excluded

a. well kept records are maintained

Which of the following is an internal control weakness related to factory equipment? Proceeds from sales of fully depreciated equipment are credited to other income. All purchases of factory equipment are required to be made by the department in need of the equipment. Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. Checks issued in payment of purchases of equipment are not signed by the controller.

b

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. Accounting for work orders. Increase in insurance coverage. Verification of liens, pledges, and collateralizations.

inspection of equipment

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 and Maintenance. Accounts Payable. Depreciation. Cash.

repairs and maintenance

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

transactions that occurred during the year

To assure accountability for fixed asset retirements, management should implement an internal control that includes: Periodic observation of plant assets by the internal auditors. Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. Utilization of serially numbered retirement work orders. Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets

use serial numbers

An auditor most likely would analyze inventory turnover rates to obtain evidence about: Valuation. Rights. Presentation. Existence.

valiation

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: Presentation. Valuation. Existence. Rights.

valuation

Which of 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. Compare rates used in the current year with those used in prior years. Perform analytical procedures. Test computation of depreciation provisions for a representative number of units

a

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts? Property, plant, and equipment accounts typically have a higher dollar value. Relatively few transactions occur in property, plant, and equipment during the year. A property, plant, and equipment cutoff error near year-end has a more significant effect on net income. The assets involved with property, plant, and equipment ordinarily have relatively longer lives.

c

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. Determine the existence of inventories and the occurrence of transactions affecting cost of goods sold. Establish that the client includes only inventory on hand at year-end in inventory totals. Establish the completeness of inventories.

c. establish that the client includes only inventory on hand at year end in inventory totals

McPherson Corp. does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: Can issue an unqualified opinion without disclosing that she did not observe year-end inventories. Should comment in the scope paragraph as to her inability to observe year-end inventories, but can nevertheless issue an unqualified opinion. Is required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole. Should, if the inventories are material, qualify her opinion.

can issue an unqualified opinion without disclosure

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

d. plant assets were retired during the year

The auditors may conclude that depreciation charges are insufficient by noting: Insured values greatly in excess of book values. Excessive recurring losses on assets retired. Continuous trade-ins of relatively new assets. Large amounts of fully depreciated assets.

excessive recurring losses on assets retired