Question 1

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

Accepted Answer

A)  Depreciation expense. 
B)  Accounts payable. 
C)  Cash. 
D)  Repairs and maintenance expense.

Question 2

Recomputing the unexpired portion of insurance policies in effect tests which of the following assertions for prepaid insurance?

Accepted Answer

A)  Existence. 
B)  Classification. 
C)  Rights and obligations. 
D)  Valuation.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

The auditor may conclude that depreciation charges are insufficient by noting

Accepted Answer

A)  insured values greatly in excess of book values. 
B)  large amounts of fully depreciated assets. 
C)  continuous trade-ins of relatively new assets. 
D)  excessive recurring losses on assets retired.

Question 7

The auditor is most likely to seek information from the plant manager with respect to the

Accepted Answer

A)  adequacy of the provision for uncollectible accounts. 
B)  appropriateness of physical inventory observation procedures. 
C)  existence of obsolete machinery. 
D)  deferral or procurement of certain necessary insurance coverage.

Question 8

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 9

List two ways an auditor can test the existence and completeness of insurance policies.

Accepted Answer

The answer of List two ways an auditor can test...

Question 10

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 11

A normal audit procedure is to analyze the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that

Accepted Answer

A)  expenditures for fixed assets have been recorded in the proper period. 
B)  capital expenditures have been properly authorized. 
C)  Non-capitalizable expenditures have been properly expensed. 
D)  expenditures for fixed assets have been capitalized.

Question 12

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 13

Describe the types of information that should be included in the schedule of prepaid insurance that is used by the auditor as the basis for auditing prepaid insurance.

Accepted Answer

The answer of Describe the types of information that should...

Question 14

To achieve effective control over fixed asset additions,a company should establish activities that require

Accepted Answer

A)  capitalization of the cost of fixed asset additions in excess of a specific dollar amount. 
B)  performance of recurring fixed asset maintenance work solely by maintenance department employees. 
C)  any fixed asset additions that are not used in the business to be classified as investments. 
D)  authorization and approval of major fixed asset additions.

Question 15

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 and disclosure. 
B)  existence or occurrence. 
C)  both (1) presentation and disclosure and (2) existence and occurrence. 
D)  neither (1) presentation and disclosure nor (2) existence and occurrence.

Question 16

Which of the following is the most important control activity over acquisitions of property,plant,and equipment?

Accepted Answer

A)  Establishing a written company policy distinguishing between capital and revenue expenditures. 
B)  Using a budget to forecast and control acquisitions and retirements. 
C)  Analyzing monthly variances between authorized expenditures and actual costs. 
D)  Requiring acquisitions to be made by user departments.

Question 17

Which of the following is likely the most effective audit procedure for the verification of the legal ownership of real property?

Accepted Answer

A)  Examination of correspondence with the corporate counsel concerning acquisitions. 
B)  Examination of ownership documents registered and on file at a public hall of records. 
C)  Examination of corporate minutes and resolutions concerning the approval to acquire property, plant, and equipment. 
D)  Examination of deeds and title guaranty policies on hand.

Question 18

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 19

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 20

Substantive analytical procedures are commonly used to test prepaid accounts.

Accepted Answer

A) True 
 B)False

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

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

Recomputing the unexpired portion of insurance policies in effect tests which of the following assertions for prepaid insurance?

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

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?

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

The auditor may conclude that depreciation charges are insufficient by noting

The auditor is most likely to seek information from the plant manager with respect to the

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.

List two ways an auditor can test the existence and completeness of insurance policies.

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

A normal audit procedure is to analyze the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that

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

Describe the types of information that should be included in the schedule of prepaid insurance that is used by the auditor as the basis for auditing prepaid insurance.

To achieve effective control over fixed asset additions,a company should establish activities that require

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

Which of the following is the most important control activity over acquisitions of property,plant,and equipment?

Which of the following is likely the most effective audit procedure for the verification of the legal ownership of real property?

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

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

Substantive analytical procedures are commonly used to test prepaid accounts.