Auditing Ch. 13 quiz

Analysis of which account is least likely to reveal evidence relating to recorded retirement of equipment? Accumulated depreciation. Insurance expense. Purchase returns and allowances. Property, plant, and equipment.

Purchase returns and allowances.

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles? A) A gain was recognized on the sale of a fixed asset in which the book value exceeded the proceeds received for the sale. B) Interest has been capitalized for self-constructed equipment. C) Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements. D) The cost of freight-in on an acquisition has been capitalized.

A gain was recognized on the sale of a fixed asset in which the book value exceeded the proceeds received for the sale.

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

A property, plant, and equipment cutoff error near year-end has a more significant effect on net income.

Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? Accumulated depreciation. Cost of goods sold. Purchase returns and allowances. Purchase discounts.

Accumulated depreciation.

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

Excessive recurring losses on assets retired.

Which of the following is not correct concerning plant assets? A) Few transactions ordinarily occur. B) Typically there is little change in accounts from year to year. C) Plant assets need to be tightly controlled to prevent defalcation. D) Year-end cutoff of plant assets has no effect net income.

Plant assets need to be tightly controlled to prevent defalcation.

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. Overhead allocations were revised at year-end. Plant assets were retired during the year. The estimated remaining useful lives of plant assets were revised upward.

Plant assets were retired during the year.

Which of the following statements is least likely to be correct concerning intangible assets? A) Auditors review the reasonableness of the client's amortization program. B) A lack of physical substance C) Valuation is a primary audit concern. D) Proper presentation as current assets.

Proper presentation as current assets.

When comparing an initial financial statement audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most? A) Accounts receivable B) Cash C) Marketable securities D) Property, plant, and equipment

Property, plant, and 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? Depreciation. Accounts Payable. Cash. Repairs.

Repairs.

The auditors are least likely to learn of retirements of equipment through which of the following? A) Review of the purchase returns and allowances account B) Review of depreciation C) Analysis of the debits to the accumulated depreciation account D) Review of insurance policy riders

Review of the purchase returns and allowances account

An effective procedure for identifying unrecorded retirements of equipment is to: 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.

In a financial statement audit, the primary overall audit approach to audit plant assets and equipment of a continuing client is ordinarily which of the following? A) Analysis and inquiry B) Direct tests of year-end ending balances C) Tests of controls D) Tests of transactions during the year

Tests of transactions during the year

long lived assets must be reviewed from impairment when

events or changes in circumstances indicate that carrying value may not be recoverable

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? Completeness. Existence. Rights. Valuation.

Existence.

An auditor has found many new assets on the plant floor, which coincides with an increase in the equipment subsidiary ledger. However, the auditor has noticed that lease payments are being made to an equipment leasing company. The auditor should primarily be concerned with which financial statement assertion? A) Rights and obligations B) Relevance C) Completeness D) Clerical accuracy

Rights and obligations

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

Utilization of serially numbered retirement work orders.

A major piece of land that the company has recently purchased for expansion has been found to contain toxic levels of pollutants. The auditor should be concerned with which financial statement assertion? A) Relevance B) Existence C) Valuation D) Completeness

Valuation

In analyzing the plant assets account, which assertion is the examination of repairs and maintenance records most directly related to? A) Rights B) Presentation C) Existence D) Valuation

Valuation

In examining the miscellaneous revenue account, an auditor discovers income from plant assets. What should be a primary audit concern? A) That such assets have been removed from the ledger of property owned. B) That such assets are not available for physical examination. C) That the assets sold were fully depreciated prior to the decision to sell them. D) That such assets have been replaced by comparable equipment.

That such assets have been removed from the ledger of property owned

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: 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.