Question 1

If the auditor is testing whether long-lived assets exist at the balance sheet date,which assertion is being tested?

Accepted Answer

When the auditor is testing whether long-lived assets exist at the balance sheet date, they are checking for the existence assertion. This assertion ensures that the assets reported in the financial statements actually exist and are owned by the company. Completeness would relate to ensuring that all long-lived assets have been included in the financial statements, whereas rights and obligations would relate to ensuring that the company has legal ownership of the assets. Valuation relates to the accuracy of the values assigned to the assets, rather than their existence.

Question 2

Which is the primary assertion tested in conjunction with obtaining evidence regarding impairment?

Accepted Answer

The primary assertion tested when obtaining evidence regarding impairment is Valuation. This involves assessing whether assets are recorded at appropriate values and if any impairments to those values have been accurately accounted for in the financial statements.

Question 3

If the auditor is testing long-lived asset account balances to see if they include all relevant transactions that have taken place during the period,what is the primary assertion being tested?

Accepted Answer

The primary assertion being tested when analyzing long-lived asset account balances for relevant transactions during the period is completeness, or whether all relevant transactions have been recorded.

Question 4

When performing preliminary analytical procedures related to long-lived assets,which of the following should the auditor compare the unaudited financial statements with?

Accepted Answer

When performing preliminary analytical procedures related to long-lived assets, the auditor should compare the unaudited financial statements with past results to identify any significant fluctuations or inconsistencies. They should also compare industry trends to assess the reasonableness of the client's financial statements. Future company projections are not relevant at this stage of the audit. Therefore, the best choice is D, which includes both A and B.

Question 5

For intangible assets,controls should be designed to do which of the following?

Accepted Answer

A) Controls should be designed to identify and account for intangible asset impairments to ensure that the carrying value of the asset reflects its true value.
B) Amortization schedules should reflect the remaining useful life of patents or copyrights associated with the asset to avoid prematurely expensing the asset.
C) Controls should provide reasonable assurance that decisions are appropriately made as to when to capitalize or expense research and development expenditures to ensure that the expenses are properly recorded on the balance sheet or income statement.

Therefore, all of the given options are correct and the answer is D.

Question 6

The auditor selects a sample of asset disposals and examines the sales documentation evidencing disposal of the equipment and recomputes gain or loss on the disposal.This audit steps primarily tests which of the following assertions for the equipment account?

Accepted Answer

The audit step of recomputing gain or loss on the disposal of equipment primarily tests the valuation assertion, ensuring that the equipment is recorded at its appropriate carrying value.

Question 7

Which of the following assertions are usually the two most relevant assertions related to long-lived assets?

Accepted Answer

The two most relevant assertions related to long-lived assets are existence and valuation. Existence is important in ensuring that the assets physically exist and are under the control of the company, while valuation is necessary to ensure that the assets are stated at their appropriate amount in the financial statements, which affects the accuracy of the financial information. The other assertions, completeness and presentation, are still important but are not as relevant as existence and valuation for long-lived assets.

Question 8

Which of the following information should be included in management's documentation regarding intangible assets?

Accepted Answer

All three pieces of information should be included in management's documentation regarding intangible assets. The manner of acquisition is relevant for understanding the source of the asset and potential limitations on its use. The basis for the capitalized amount is important for determining the value of the asset and ensuring that it is appropriately measured on the balance sheet. The expected period of benefit is key for determining the proper amortization period and assessing the potential for impairment.

Question 9

Which of the following procedures is not a procedure used by an auditor in searching for unrecorded disposals of long-lived assets?

Accepted Answer

Observing inventory count is not a procedure used by an auditor in searching for unrecorded disposals of long-lived assets because it only involves checking the quantity of inventory on hand and not whether any long-lived assets have been disposed of without being recorded. The other choices, including inquiring clients about disposals, examining cash receipts journal, and examining scrap sales accounts, are all procedures commonly used by auditors to search for unrecorded disposals of long-lived assets.

Question 10

In a tour of a client's manufacturing facility,the auditor is most likely attempting to satisfy which of the following management assertions related to long-lived assets?

Accepted Answer

The auditor is most likely attempting to satisfy the assertion of existence by physically observing and verifying the existence of the long-lived assets. The completeness assertion relates to ensuring that all long-lived assets are recorded, while the rights assertion relates to ownership and legal authority to use the assets. Presentation and disclosure assertion relates to the accuracy and completeness of the financial statement disclosures regarding long-lived assets.

Question 11

A client has implemented a policy requiring the establishment and enforcement of property management training for all personnel involved in the use,stewardship,and management of equipment.Which of the following is not a test that could be used in testing the control?

Accepted Answer

Review of financial statements is not directly relevant to the testing of the control for the establishment and enforcement of property management training. The other options - inquiry, observation, and inspection of documentation - are all relevant to evaluating the implementation of the policy.

Question 12

Which of the following would not be used as a substantive analytical procedure related to depreciation expense and accumulated depreciation?

Accepted Answer

The answer of Which of the following would not be...

Question 13

Reconciling the physical asset inventory with the property ledger on a periodic basis is a control related to which management assertion?

Accepted Answer

Reconciling the physical asset inventory with the property ledger ensures that the assets actually exist, which is related to the existence assertion.

Question 14

Which of the following is a term used to describe management's recognition that a significant portion of fixed assets is no longer as productive as had originally been expected?

Accepted Answer

Asset impairment refers to management's recognition that a significant portion of fixed assets has decreased in value or is no longer productive as initially expected. This recognition may result in a write-down to the value of the asset on the company's books. A and B refer to the gradual decrease in value of assets over time, and D refers to the removal or sale of assets.

Question 15

Audit procedures should be proportional to which of the following?

Accepted Answer

Audit procedures should be proportional to the assessed risks of the audit. This means that the higher the risk of material misstatements, the more extensive the audit procedures should be. The size of the client or the firm is not necessarily an indication of the level of risk or the amount of audit procedures required. Similarly, the assessed misstatements should inform the extent of audit procedures, but this alone should not be the sole determining factor.

Question 16

The auditor performs substantive procedures related to property,plant and equipment to determine if the assets have been pledged as collateral or title has transferred.What is the primary assertion the auditor is testing?

Accepted Answer

The auditor is primarily testing the assertion of rights, to ensure that the entity has lawful ownership and rights to use the property, plant, and equipment being reported on the financial statements. The other assertions may also be relevant to the audit of property, plant, and equipment, but the primary focus is on rights.

Question 17

Which one of the following does not constitute probable relationships between accounts?

Accepted Answer

Oil reserves are not subject to depreciation since they are classified as a non-depleting asset. Instead, they are subject to depletion. Therefore, there is not a probable relationship between oil reserves and depreciation.

Question 18

Which of the following procedures is a substantive procedure that relates to the rights and obligations assertion?

Accepted Answer

Examining documents of title is a substantive procedure that relates to the rights and obligations assertion. This procedure helps to verify ownership and legal claims to assets such as land, buildings, and equipment. The other options are not related to the rights and obligations assertion: assessing management's impairment estimates is a procedure related to the valuation assertion, recalculating amortization expense is related to the completeness assertion, and inquiring management about assets that are idle is related to the existence and occurrence assertion.

Question 19

Which of the following is not a technique that auditors can use when performing preliminary analytical procedures related to long-lived assets?

Accepted Answer

All of the techniques mentioned (performing an overall estimate of depreciation expense, reviewing and analyzing gains/losses on disposals of equipment, and comparing depreciable lives used by the client with industry standards) are common techniques used by auditors when performing preliminary analytical procedures related to long-lived assets.

Question 20

If the auditor is performing substantive procedure to determine whether the long-lived asset balance is reflected on the balance sheet in the noncurrent section,which of the following assertions is being tested?

Accepted Answer

The answer of If the auditor is performing substantive procedure...

Quiz 12: Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal