You are auditing the acquisition and payment cycle and note the presence of excessive recurring losses on retired assets. You may conclude that
A) insured values are greater than book values.
B) there are a large number of fully depreciated assets.
C) depreciation charges may by insufficient.
D) the company has a policy of selling relatively new assets.

Question

Quizplus · Accepted Answer

Excessive recurring losses on retired assets may indicate that the depreciation charges are insufficient, meaning that the book value of the assets may not have been properly depreciated over time. This can result in a higher loss on retirement of the asset, which is reflected in the financial statements. A large number of fully depreciated assets or a policy of selling relatively new assets may also be factors, but they do not directly explain the presence of excessive recurring losses. Insured values being greater than book values may be an indication of over-insurance, but this does not necessarily relate to the excessive losses on retired assets.

You Are Auditing the Acquisition and Payment Cycle and Note