audit ch13

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? A) Depreciation. B) Accounts Payable. C) Cash. D) Repairs and Maintenance.

Repairs and maintenance

The auditors' approach to the audit of property, plant, and equipment largely results from the fact that many transactions occur.

false

The auditors' principal objective in analyzing depreciation expense is to discover items that should have been capitalized.

false

4._________ assets can be audited at an interim date.

intangible

An important control for plant and equipment is the plant and equipment budget

true

In the audit of depletion the auditors must often rely on the work of specialists.

true

The auditors typically vouch major additions to plant and equipment recorded during the period under audit.

true

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? Multiple Choice Existence Rights and obligations Valuation and allocation Completeness

valuation and allocation

5.When property is tested at an interim date, audits must roll forward procedures to the ______ date.

year end

To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: Multiple Choice Increase in insurance coverage. Inspection of equipment and reconciliation with accounting records. Verification of liens, pledges, and collateralizations. Accounting for work orders.

Inspection of equipment and reconciliation with accounting records.

Which of the following is the best evidence of real estate ownership at the balance sheet date? Multiple Choice Original deed held in the client's safe. Paid real estate tax bills. Title insurance policy. Closing statement.

Paid real estate tax bills.

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

Plant assets were retired during the year.

An effective procedure for identifying unrecorded retirements of equipment is to: Multiple Choice Foot related property records. Recalculate depreciation on the related equipment. Select items of equipment in the accounting records and then locate them in the plant. Select items of equipment and then locate them in the accounting records.

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

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

Transactions that occurred during the year.

Material purchases of assets from an affiliated company should be disclosed in the financial statements.

True

To achieve effective internal control over fixed-asset additions, a company should establish procedures that require: Multiple Choice performance of recurring fixed-asset maintenance work solely by maintenance department employees. classification as investments of those fixed-asset additions that are not used in the business. capitalization of the cost of fixed-asset additions in excess of a specific dollar amount. authorization and approval of major fixed-asset additions.

authorization and approval of major fixed-asset additions.

2.Most of the work on property can be done _______the balance sheet date.

before

3.In a first year audit, auditors must get comfortable with the _____balances in property.

beginning

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? Multiple Choice Existence. Rights and obligations Completeness Valuation and allocation

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? Multiple Choice Existence Completeness Valuation and allocation Rights and obligations

completeness

While testing property at an interim date, _____can be tested in coordination with property.

depreciation

In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to? Multiple Choice Completeness. Rights. Valuation. Existence.

existence

A normal audit procedure is to analyze the current year repairs and maintenance accounts to provide evidence in support of the audit proposition that: Multiple Choice expenditures for fixed assets have been recorded in the proper period. non capitalizable expenditures have been properly expensed. capital expenditures have been properly authorized. expenditures for fixed assets have been capitalized

expenditures for fixed assets have been capitalized

Better evidence of continuing ownership of property is provided by examination of the deed.

false