Question 1

Reviewing capital budgets and comparing the amounts spent with amounts budgeted is an example of a substantive analytical procedure for auditing prepaid accounts.

Accepted Answer

A) True 
 B)False

Question 2

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 3

To improve accountability for fixed asset retirements,management most likely would implement a system of internal control that includes

Accepted Answer

A)  Continuous analysis of the repairs and maintenance account. 
B)  Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. 
C)  Continuous utilization of sequentially numbered retirement work orders. 
D)  Periodic inspection of insurance policies by the internal auditors.

Question 4

Inquiry of client personnel and a review of lease transactions for the same period can provide evidence on proper cutoff for capital leases.

Accepted Answer

A) True 
 B)False

Question 5

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 prenumbered purchase orders used for equipment and periodically accounted for? 
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 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  Too much expired insurance is still included in prepaid insurance. 
B)  PP&E insurance expense includes some expenses related to product liability insurance. 
C)  Depreciation expense was based on overly short useful lives. 
D)  Some routine maintenance on equipment was added to the equipment asset account.

Question 9

If an entity has few capital asset purchases,it will generally not have a formal control system over such transactions.

Accepted Answer

A) True 
 B)False

Question 10

Inherent risk for prepaid expenses would generally be assessed as low because these accounts do not usually include complex transactions.

Accepted Answer

A) True 
 B)False

Question 11

In performing a search for unrecorded retirements of fixed assets,an auditor most likely would

Accepted Answer

A)  Inspect the property ledger and the insurance and tax records and then tour the client's facilities. 
B)  Tour the client's facilities and then inspect the property records and the insurance and tax records. 
C)  Analyze the repair and maintenance account and then tour the client's facilities. 
D)  Tour the client's facilities and then analyze the repair and maintenance account.

Question 12

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 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

Substantive analytical procedures are commonly used to test prepaid accounts.

Accepted Answer

A) True 
 B)False

Question 15

Tennessee Company violated company policy by erroneously capitalizing the cost of painting its warehouse.The CPA examining Tennessee's financial statements would most likely learn of this error by

Accepted Answer

A)  Discussing Tennessee's capitalization policies with its controller. 
B)  Reviewing the titles and descriptions for all construction work orders issued during the year. 
C)  Observing during the physical inventory observation that the warehouse has been painted. 
D)  Examining in detail a sample of construction work orders.

Question 16

Match between columns
                        Premises: Patented IT program
Order backlogs
Franchise
Copyright
Trademark

Accepted Answer

The Answer of Marketing and Customer and Artistic and Contract is...

Question 17

Testing a sample of repairs and maintenance expense items to ensure that they were properly classified as repairs as opposed to property,plant,and equipment tests which of the following assertions for the repairs and maintenance expense account?

Accepted Answer

A)  Occurrence. 
B)  Completeness. 
C)  Cutoff. 
D)  Authorization.

Question 18

Assets no longer used in operations are accounted for in essentially the same manner as those used in operations.

Accepted Answer

A) True 
 B)False

Question 19

An example of a prepaid account is prepaid interest.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following policies constitutes a control weakness related to the acquisition of factory equipment?

Accepted Answer

A)  Acquisitions are to be made through and approved by the department in need of the equipment. 
B)  Advance executive approvals are required for equipment acquisitions. 
C)  Variances between authorized equipment expenditures and actual costs are to be immediately reported to management. 
D)  Depreciation policies are reviewed only once a year.

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

Reviewing capital budgets and comparing the amounts spent with amounts budgeted is an example of a substantive analytical procedure for auditing prepaid accounts.

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

To improve accountability for fixed asset retirements,management most likely would implement a system of internal control that includes

Inquiry of client personnel and a review of lease transactions for the same period can provide evidence on proper cutoff for capital leases.

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

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

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

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

If an entity has few capital asset purchases,it will generally not have a formal control system over such transactions.

Inherent risk for prepaid expenses would generally be assessed as low because these accounts do not usually include complex transactions.

In performing a search for unrecorded retirements of fixed assets,an auditor most likely would

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

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

Substantive analytical procedures are commonly used to test prepaid accounts.

Tennessee Company violated company policy by erroneously capitalizing the cost of painting its warehouse.The CPA examining Tennessee's financial statements would most likely learn of this error by

Match each of the following intangible assets with its proper general category

Testing a sample of repairs and maintenance expense items to ensure that they were properly classified as repairs as opposed to property,plant,and equipment tests which of the following assertions for the repairs and maintenance expense account?

Assets no longer used in operations are accounted for in essentially the same manner as those used in operations.

An example of a prepaid account is prepaid interest.

Which of the following policies constitutes a control weakness related to the acquisition of factory equipment?