Chapter 13 LS

Intangible assets ______.

- lack physical substance - provide rights or economic advantages - are nonmonetary

Acceptable depreciation methods include ______.

units of output declining-balance straight-line

The audit of depreciation relates most directly to the audit objectives of ______.

valuation or allocation

The approach typically used by auditors to audit depreciation is ______.

review and test management's process of developing the estimate

To test depreciation auditors may ______.

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

Due to the complexity in determining the basis for depletion for mining and oil and gas, auditors most often use ______.

specialists such as mining engineers and geologists

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

Fences and parking lots are examples of __________ __________ which are subject to depreciation.

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

Which subgroup of property, plant, and equipment is subject to depletion?

Natural resources

The key audit working paper for property, plant, and equipment is ______.

a summary analysis of assets and accumulated depreciation accounts

Because of limited number of transactions, most of the audit work on plant, equipment, and intangibles can be done at ______.

interim before the year-end date

True or false: Some audit clients choose to maintain their depreciation records using federal income tax rules such as MACRS. This practice can lead to materially misstated depreciation expense.

True

The summary analysis of property, plant, and equipment emphasizes ______ under audit.

all changes during the year

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

capital ;revenue

Auditors need to perform a complete historical analysis of the property accounts for a client that has never been audited because ______.

repair and maintenance expenses may have been capitalized

What factor(s) lead to a smaller proportion of total audit time on property, plant, and equipment compared to current assets?

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

Which subgroup of property, plant, and equipment is subject to depreciation?

Buildings, machinery, equipment, and land improvements

What control helps to verify the existence, location, and condition of all property listed in the accounts?

Periodic physical inspections

Compared to PPE, auditors typically spend a larger proportion of audit time on ______.

current assets

When auditing property, plant, and equipment, auditors also gather evidence on the related accounts of ______ expense

depreciation repairs and maintenance

Auditors need to gather evidence regarding the presentation and disclosure of property, plant, and equipment including disclosure of ______.

depreciation methods

Intangible assets tend to be difficult to audit because of all of the following factors except ______.

payments made to acquire assets can be reviewed

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

occurrence

Audit procedures for property, plant, and equipment typically performed at an interim date 2 months before year-end include ______.

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

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 ______.

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

To confirm their understanding of internal control over property, plant, and equipment, auditors will ______.

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

Key controls applicable to plant and equipment are ______.

- 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

For effective internal control over property, plant, and equipment, periodic physical inventories of plant assets should be compared with the ______.

ledger accounts for the plant assets