Question 1

In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding:

Accepted Answer

A) the capitalization vs. expensing policy. 
B) the allocation of fixed and variable costs. 
C) the need to write off equipment that has become obsolete. 
D) the adequacy of depreciation expense.

Question 2

The purchase of capital assets should be consistent with the authorization table used by the entity to approve such transactions. However, no such table is normally used for lease transactions.

Accepted Answer

A) True 
 B)False

Question 3

Disposition of capital assets through sale, exchange, retirement, or abandonment are transactions that occur in the property management process.

Accepted Answer

A) True 
 B)False

Question 4

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the:

Accepted Answer

A) adequacy of controls. 
B) extent of property abandoned, retired, or sold during the year. 
C) adequacy of replacement funds. 
D) reasonableness of the depreciation.

Question 5

In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management's assertion(s)about:

Accepted Answer

A) presentation. 
B) existence. 
C) both (1)presentation and (2)existence. 
D) neither (1)presentation nor (2)existence.

Question 6

Auditors can usually gather sufficient, competent evidence on prepaid insurance by performing substantive analytical procedures. Why is this?

Accepted Answer

The answer of Auditors can usually gather sufficient, competent evidence...

Question 7

Due to a weakness observed in internal control over recording retirements of equipment, the auditor may decide to:

Accepted Answer

A) inspect certain items of equipment in the plant and trace those items to the accounting records. 
B) review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. 
C) trace additions to the "other assets" account to search for equipment that is still on hand but no longer is being used. 
D) select certain items of equipment from the accounting records and locate them in the plant.

Question 8

Substantive analytical procedures should not be used in the audit of property, plant, and equipment.

Accepted Answer

A) True 
 B)False

Question 9

Testing depreciation calculations for a sample of property, plant, and equipment tests the assertion of:

Accepted Answer

A) existence. 
B) completeness. 
C) valuation and allocation. 
D) rights and obligations.

Question 10

Which of the following questions would an auditor least likely include on an internal control questionnaire concerning the initiation and execution of equipment transactions?

Accepted Answer

A) Are requests for major repairs approved at a higher level than the department initiating the request? 
B) Are dispositions authorized at a level above the department initiating the disposition? 
C) Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids? 
D) Are procedures in place to monitor and properly restrict access to equipment?

Question 11

How do accounting standards regarding accounting for the impairment or disposal of long-lived assets affect the audit of property, plant, and equipment?

Accepted Answer

The answer of How do accounting standards regarding accounting for...

Question 12

There are a number of important disclosure items to consider when auditing the property management process. List two. Where in the financial statements can some of the disclosures relating to property, plant, and equipment be found?

Accepted Answer

The answer of There are a number of important disclosure...

Question 13

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

Accepted Answer

A) Several fully depreciated assets were retired during the year. 
B) Prior years' depreciation charges were erroneously understated. 
C) A reserve for possible loss on retirement has been recorded. 
D) An asset has been recorded at its fair value.

Question 14

Which of the following audit procedures would be least likely to lead the auditor to find unrecorded fixed asset disposals?

Accepted Answer

A) Examination of insurance policies for evidence of a dropped or cancelled policy. 
B) Review of repairs and maintenance expense. 
C) Review of property tax files. 
D) Scanning of invoices for fixed asset additions for evidence of a purchase to replace a previously owned fixed asset.

Question 15

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all:

Accepted Answer

A) non-capitalizable expenditures for repairs and maintenance have been recorded in the proper period. 
B) expenditures for property and equipment have been recorded in the proper period. 
C) non-capitalizable expenditures for repairs and maintenance have been properly charged to expense. 
D) expenditures for property and equipment have not been charged to expenses.

Question 16

Identify the types of transactions that occur in the property management process.

Accepted Answer

The answer of Identify the types of transactions that occur...

Question 17

If the ratio of repairs and maintenance expense to property, plant, and equipment is higher than expected, which of the following is a plausible explanation?

Accepted Answer

A) Routine maintenance on an important piece of machinery was charged to repairs and maintenance expense. 
B) An addition to a building was charged to repairs and maintenance expense. 
C) The company forgot to depreciate all of its equipment. 
D) The company purchased an unusual amount of new equipment.

Question 18

The property, plant, and equipment records function should be segregated from the custodial function.

Accepted Answer

A) True 
 B)False

Question 19

Match each of the following intangible assets with its proper general category.
-Patented IT program

Accepted Answer

A) Artistic 
B) Goodwill 
C) Customer 
D) Marketing 
E) Technology
F)Contract

Question 20

For each of the following tests, state whether it is a test of details of account balances or a test of details of transactions. Then note for which property management assertion the test provides evidence.
1. Test depreciation calculations for a sample of capital assets
2. For assets written off, test amounts charged against income and accumulated depreciation
3. Physically examine the capital asset additions
4. Vouch transactions included in repairs and maintenance for items that should be capitalized
5. Vouch significant additions and dispositions to vendor invoices or other supporting documentation
6. Examine or confirm deeds or title documents for proof of ownership

Accepted Answer

The answer of For each of the following tests, state...

Exam 14: Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding:

The purchase of capital assets should be consistent with the authorization table used by the entity to approve such transactions. However, no such table is normally used for lease transactions.

Disposition of capital assets through sale, exchange, retirement, or abandonment are transactions that occur in the property management process.

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the:

In testing plant and equipment balances, an auditor may inspect new additions listed on the analysis of plant and equipment. This procedure is designed to obtain evidence concerning management's assertion(s) about:

Auditors can usually gather sufficient, competent evidence on prepaid insurance by performing substantive analytical procedures. Why is this?

Due to a weakness observed in internal control over recording retirements of equipment, the auditor may decide to:

Substantive analytical procedures should not be used in the audit of property, plant, and equipment.

Testing depreciation calculations for a sample of property, plant, and equipment tests the assertion of:

Which of the following questions would an auditor least likely include on an internal control questionnaire concerning the initiation and execution of equipment transactions?

How do accounting standards regarding accounting for the impairment or disposal of long-lived assets affect the audit of property, plant, and equipment?

There are a number of important disclosure items to consider when auditing the property management process. List two. Where in the financial statements can some of the disclosures relating to property, plant, and equipment be found?

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

Which of the following audit procedures would be least likely to lead the auditor to find unrecorded fixed asset disposals?

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all:

Identify the types of transactions that occur in the property management process.

If the ratio of repairs and maintenance expense to property, plant, and equipment is higher than expected, which of the following is a plausible explanation?

The property, plant, and equipment records function should be segregated from the custodial function.

Match each of the following intangible assets with its proper general category. -Patented IT program