Question 1

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 2

An auditor typically sets inherent risk for intangible assets at this level

Accepted Answer

A)  low. 
B)  moderate. 
C)  zero. 
D)  high.

Question 3

Property,plant,and equipment is often a significant portion of a company's assets.Describe the inherent risk factors that can affect the audit of this account.

Accepted Answer

The answer of Property,plant,and equipment is often a significant portion...

Question 4

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 5

In testing for unrecorded retirements of equipment,an auditor most likely would

Accepted Answer

A)  select items of equipment from the accounting records and then locate them during the plant tour. 
B)  compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment. 
C)  inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger. 
D)  scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

Question 6

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 7

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

Accepted Answer

The answer of Match each of the following intangible assets...

Question 8

If the auditor has detected misstatements in prior audits,the assessment of inherent risk for the property management process will usually be set higher.

Accepted Answer

A) True 
 B)False

Question 9

What tests do auditors typically perform on a lead schedule for property,plant,and equipment and what assertion are they testing?

Accepted Answer

The answer of What tests do auditors typically perform on...

Question 10

Which of the following situations has the best chance of being detected when a CPA compares revenues and expenses reported for the year being audited (current year)with the prior year and investigates all changes exceeding a fixed percentage?

Accepted Answer

A)  An increase in property tax rates has not been recognized in the company's current year accrual. 
B)  The cashier began lapping accounts receivable in the current year. 
C)  Because of worsening economic conditions, the current year provision for uncollectible accounts was inadequate. 
D)  The company changed its capitalization policy for small tools in the current year.

Question 11

For each analytical procedure listed below,identify a potential misstatement in the property management accounts it could help find.
a.Compute the ratio of depreciation expense to the related property,plant,and equipment accounts and compare to prior years' ratios
b.Compare monthly or annual repairs and maintenance with previous years
c.Compute ratio of insurance expense to the related property,plant,and equipment accounts and compare to prior years' ratios

Accepted Answer

The answer of For each analytical procedure listed below,identify a...

Question 12

Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?

Accepted Answer

A)  Repairs and maintenance expense. 
B)  Depreciation expense. 
C)  Gain on disposal of equipment. 
D)  Accounts payable.

Question 13

Equipment acquisitions that are misclassified as maintenance expenses most likely would be detected by a control activity that provides for

Accepted Answer

A)  segregation of duties of employees in the accounts payable department. 
B)  independent verification of invoices for disbursements recorded as equipment acquisitions. 
C)  investigation of variances within a formal budgeting system. 
D)  authorization by the board of directors of significant equipment acquisitions.

Question 14

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 15

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.
Test depreciation calculations for a sample of capital assets
For assets written off,test amounts charged against income and accumulated depreciation
Physically examine the capital asset additions
Vouch transactions included in repairs and maintenance for items that should be capitalized
Vouch significant additions and dispositions to vendor invoices or other supporting documentation
Examine of confirm deeds or title documents for proof of ownership

Accepted Answer

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

Question 16

Determining that proper amounts of depreciation are expensed provides assurance about management's assertions of presentation and disclosure and

Accepted Answer

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

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

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 19

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

Accepted Answer

A)  A policy requiring all purchases of factory equipment to be made by the department in need of the equipment. 
B)  Checks issued in payment of purchases of equipment are not signed by the controller. 
C)  Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. 
D)  Proceeds from sales of fully depreciated equipment are credited to other income.

Question 20

In verifying the amount of goodwill recorded by an entity,the most convincing evidence that an auditor can obtain is by comparing the recorded value of assets acquired with the

Accepted Answer

A)  assessed value as evidenced by tax bills. 
B)  seller's book value as evidenced by financial statements. 
C)  insured value as evidenced by insurance policies. 
D)  appraised value as evidenced by independent appraisals.

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