auditing chapter 13 Property, plant, and equipment

Auditors typically observe the client's physical inventory of plant and equipment.

False

The auditors should take exception to any accounting policy that involves the expensing of minor capital assets

False

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

False

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

True

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

A )capital expenditures have been properly authorized.

A typical audit procedure in examining plant and equipment is an analysis of the Miscellaneous Revenue account.

True

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

True

Patentex developed a new secret formula that is of great value because it resulted in a virtual monopoly. Patentex has capitalized all research and development costs associated with this formula. Greene, CPA, who is examining this account will probably: a) confer with management regarding ownership of the secret formula. b) confer with management regarding a change in the title of the account to "goodwill". c) confirm that the secret formula is registered and on file with the county clerk's office. c) confer with management regarding transfer of the amount from the balance sheet to the income statement.

a) confer with management regarding ownership of the secret formula.

The auditors may conclude that depreciation charges are insufficient by noting: a) excessive recurring losses on assets retired. b) insured values greatly in excess of book values. c) large amounts of fully depreciated assets. d) continuous trade-ins of relatively new assets.

a) excessive recurring losses on assets retired.

In the examination of property, plant, and equipment, the auditors try to determine all of the following except the: a) adequacy of internal control. b) adequacy of replacement funds. c) reasonableness of the depreciation. d) extent of property abandoned during the year.

b) adequacy of replacement funds

Which of the following audit procedures would be least likely to lead the auditors to find unrecorded fixed asset disposals? a) Review losses on sales of equipment account. b) Examination of insurance policies. c) Review of property tax files. d) Review of repairs and maintenance expense.

d) Review of repairs and maintenance expense.