Question 1

Using audit software to foot the equipment master file and agreeing the master file total to the general ledger is generally sufficient when verifying the ending balance of the equipment account.

Accepted Answer

Using audit software to foot the equipment master file and agreeing the total to the general ledger provides sufficient evidence to verify the ending balance of the equipment account.

Question 2

A balance-related audit objective in property, plant, and equipment includes the proper classification of these assets on the balance sheets. The auditor should therefore examine vendors' invoices in various property, plant, and equipment accounts to ensure that such invoices are classified, properly, as building, manufacturing, office equipment, or repairs.

Accepted Answer

This statement is true. The proper classification of property, plant, and equipment assets on the balance sheet is a balance-related audit objective. The auditor should examine invoices to ensure that they are correctly classified in the appropriate accounts.

Question 3

In the audit of equipment and related accounts, verifying that the ending balances are properly classified and are adequately disclosed in the financial statements is one of the tests the auditor must perform.

Accepted Answer

This statement is true. The auditor must ensure that the ending balances of equipment and related accounts are appropriately classified and disclosed in the financial statements in accordance with the applicable accounting standards and principles. This is part of the auditor's responsibility to evaluate the presentation and disclosure of the financial statements, as well as their overall accuracy and reliability.

Question 4

One very useful method of auditing depreciation is to use an analytical procedure to test for reasonableness.

Accepted Answer

Analytical procedures involve evaluating financial information by assessing plausible relationships among data. This can be useful in testing the reasonableness of depreciation amounts, such as comparing current depreciation charges to prior periods or comparing them to industry standards.

Question 5

The auditor can rely on the combination of management's estimates of fair value estimates and any associated impairment write downs that result to long-lived assets, when required, combined with the opinion of the specialist hired by management in auditing management's estimates and write downs.

Accepted Answer

The auditor can rely on the combination of management's estimates of fair value estimates and any associated impairment write downs that result to long-lived assets, when required, combined with the opinion of the specialist hired by management in auditing management's estimates and write downs.

Question 6

Generally, in most situations, the audits of property, plant, and equipment accounts are similar.

Accepted Answer

The audits of property, plant, and equipment accounts generally involve similar procedures, such as physical inspections, obtaining documentation, testing for impairment, and evaluating internal controls. However, the specific procedures may vary depending on the nature and complexity of the assets, as well as the audit objectives and risks involved.

Question 7

Equipment additions which are infrequent in occurrence and large in dollar amounts, which were included as part of the tests of the acquisition and payment cycle, allow the auditor to rely heavily on the results of such tests.

Accepted Answer

Equipment additions that are infrequent and large in dollar amounts may require specific attention and separate verification by the auditor, as they might not be representative of the typical transactions within the acquisition and payment cycle. Reliance on tests of these transactions alone may not provide sufficient evidence about the overall accuracy of the cycle.

Question 8

A long-lived asset that is classified as held for sale is measured at the lower of the carrying value or fair value less the cost to sell, and should be presented, separately, in the financial statements if material.

Accepted Answer

This statement is true. According to accounting standards, a long-lived asset classified as held for sale should be measured at the lower of carrying value or fair value less cost to sell and presented separately if material.

Question 9

If management hires a specialist to estimate the fair value of a long-lived asset, the auditor should take appropriate steps as required by auditing standards in evaluating the work of the specialist

Accepted Answer

According to auditing standards, if management hires a specialist to estimate the fair value of a long-lived asset, the auditor should take appropriate steps to evaluate the work of the specialist. This includes considering the qualifications and independence of the specialist, assessing the methods used by the specialist, and obtaining sufficient evidence to support the specialist's findings. Therefore, the statement is true.

Question 10

The approach to auditing patents and copyrights is similar to that used for property, plant, and equipment accounts.

Accepted Answer

The approach to auditing patents and copyrights is similar to the approach used for auditing property, plant, and equipment accounts. Both involve verifying ownership, existence, and valuation.

Question 11

Equipment on hand which is no longer used in operations but which the auditor has physically verified as being in existence does not need to be evaluated for potential impairment.

Accepted Answer

Even though the equipment is still in existence, it may still need to be evaluated for potential impairment if it is no longer being used in operations. The value of the equipment may have decreased due to obsolescence or other factors, and impairments may need to be recognized in the financial statements. Therefore, the statement given in the question is incorrect.

Question 12

The auditor's knowledge of the client's business is important when auditing management's judgements in evaluating whether a long-lived asset is impaired or not, including estimating fair value of these assets.

Accepted Answer

The auditor's knowledge of the client's business is important when auditing management's judgements in evaluating whether a long-lived asset is impaired, including estimating fair value of these assets. This is because the auditor needs to understand the nature and characteristics of the business operations and the industry in which the client operates to be able to assess the reasonableness of the management's judgments related to the impairment of long-lived assets.

Question 13

Recording an acquisition of a fixed asset at an improper amount affects the balance sheet until the company disposes of the asset, but the income statement is not affected.

Accepted Answer

Recording an acquisition of a fixed asset at an improper amount affects both the balance sheet and the income statement, as depreciation expense (related to the asset) impacts the income statement over the asset's useful life.

Question 14

Ordinarily, if you are auditing a continuing client, it is unnecessary to test the accuracy objective or the classification objective for fixed assets acquired in prior years.

Accepted Answer

This is because the accuracy and classification objectives would have been tested in prior audits and the auditor can rely on the previous year's work. However, if there are indications of material misstatements or changes in accounting policies, the auditor may need to retest these objectives for prior year acquisitions.

Question 15

When auditing acquisitions of property, plant, and equipment, the auditor's review of lease and rental agreements most closely relate to the cutoff objective.

Accepted Answer

The auditor's review of lease and rental agreements most closely relates to the classification and understandability objective, ensuring transactions are recorded in the correct accounting period and properly classified in the financial statements. The cutoff objective specifically deals with ensuring transactions and events have been recorded in the correct accounting period.

Question 16

The intent to use property, plant, and equipment as part of the operations of a client's business is a significant characteristic that differentiates these assets from other assets like inventory and prepaid expenses.

Accepted Answer

Property, plant, and equipment are used to generate revenue through the operations of a business, whereas inventory and prepaid expenses are typically consumed or used up in the near term.

Question 17

Auditors needs to examine purchase and/or lease contracts entered into related to property, plant, and equipment, to determine if capitalization of the property, plant, and equipment is appropriate or not.

Accepted Answer

Auditors need to examine purchase and/or lease contracts related to property, plant, and equipment to ensure that the cost is appropriately capitalized as part of the entity's property, plant, and equipment. This allows for accurate financial reporting and helps prevent misstatement or fraud.

Question 18

Performance materiality is important for verifying current year additions because these transactions have consistent dollar amounts from year to year.

Accepted Answer

Performance materiality is not solely based on consistent dollar amounts from year to year. It takes into account various factors such as the size and complexity of the entity, the risk of material misstatements, and the materiality of individual transactions or account balances. Therefore, relying solely on consistent dollar amounts may not be sufficient for verifying current year additions.

Question 19

In the audit of property, plant, and equipment, auditors need to examine if the client has the right to record these assets as assets on the balance sheet. The auditor needs to examine any lease agreements associated with these assets to determine if the lease qualifies as a finance or an operating lease.

Accepted Answer

This statement is true. In the audit of property, plant, and equipment, auditors need to examine lease agreements associated with these assets to determine if the lease qualifies as a finance or operating lease to ensure that the client is recording these assets correctly on the balance sheet.

Question 20

Property, plant, and equipment are assets that have expected lives of less than one year, are used in the business, and are not acquired for resale.

Accepted Answer

Property, plant, and equipment are assets that have expected lives of MORE than one year, and are used in the business but are NOT acquired for resale.

Quiz 19: Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Using audit software to foot the equipment master file and agreeing the master file total to the general ledger is generally sufficient when verifying the ending balance of the equipment account.

In the audit of equipment and related accounts, verifying that the ending balances are properly classified and are adequately disclosed in the financial statements is one of the tests the auditor must perform.

One very useful method of auditing depreciation is to use an analytical procedure to test for reasonableness.

The auditor can rely on the combination of management's estimates of fair value estimates and any associated impairment write downs that result to long-lived assets, when required, combined with the opinion of the specialist hired by management in auditing management's estimates and write downs.

Generally, in most situations, the audits of property, plant, and equipment accounts are similar.

Equipment additions which are infrequent in occurrence and large in dollar amounts, which were included as part of the tests of the acquisition and payment cycle, allow the auditor to rely heavily on the results of such tests.

A long-lived asset that is classified as held for sale is measured at the lower of the carrying value or fair value less the cost to sell, and should be presented, separately, in the financial statements if material.

If management hires a specialist to estimate the fair value of a long-lived asset, the auditor should take appropriate steps as required by auditing standards in evaluating the work of the specialist

The approach to auditing patents and copyrights is similar to that used for property, plant, and equipment accounts.

Equipment on hand which is no longer used in operations but which the auditor has physically verified as being in existence does not need to be evaluated for potential impairment.

The auditor's knowledge of the client's business is important when auditing management's judgements in evaluating whether a long-lived asset is impaired or not, including estimating fair value of these assets.

Recording an acquisition of a fixed asset at an improper amount affects the balance sheet until the company disposes of the asset, but the income statement is not affected.

Ordinarily, if you are auditing a continuing client, it is unnecessary to test the accuracy objective or the classification objective for fixed assets acquired in prior years.

When auditing acquisitions of property, plant, and equipment, the auditor's review of lease and rental agreements most closely relate to the cutoff objective.

The intent to use property, plant, and equipment as part of the operations of a client's business is a significant characteristic that differentiates these assets from other assets like inventory and prepaid expenses.

Auditors needs to examine purchase and/or lease contracts entered into related to property, plant, and equipment, to determine if capitalization of the property, plant, and equipment is appropriate or not.

Performance materiality is important for verifying current year additions because these transactions have consistent dollar amounts from year to year.

Property, plant, and equipment are assets that have expected lives of less than one year, are used in the business, and are not acquired for resale.