Question 1

A record of insurance policies in force and the due date of each policy is contained in the

Accepted Answer

An insurance register is a ledger that contains a record of all insurance policies in force, including the due date of each policy. The other options listed (voucher register, insurance expense account, and prepaid insurance account) are not specific to tracking insurance policies and their due dates.

Question 2

In connection with a review of the prepaid insurance account, which of the following audit procedures would you be least likely to use?

Accepted Answer

Confirming premium rates with an independent insurance broker may not be necessary for reviewing the prepaid insurance account as it does not directly relate to verifying the accuracy of the account balance. The other options listed would all be useful in determining the accuracy of the prepaid insurance account.

Question 3

Which of the following accounts would normally not be a part of the acquisition and payment cycle of prepaid insurance?

Accepted Answer

Insurance payable is not typically part of the acquisition and payment cycle for prepaid insurance because this cycle involves prepaying for insurance coverage, which directly impacts cash (payment goes out), prepaid insurance (asset increases), and insurance expense (expense recognized over time). Insurance payable would imply a liability related to insurance that is yet to be paid, which does not align with the prepaid nature of the transactions in this cycle.

Question 4

The realizable value audit objective is not applicable when auditing prepaid insurance or insurance expense.

Accepted Answer

The realizable value audit objective pertains to verifying the accuracy of the amounts recorded for the realization of assets or settlement of liabilities. This objective is not applicable when auditing prepaid insurance or insurance expense, as these accounts do not involve the disposition of assets or liabilities. Instead, the relevant audit objectives for prepaid insurance and insurance expense may include existence, completeness, valuation, and presentation and disclosure.

Question 5

Insurance expense for the period is a function of which of the following?

Accepted Answer

Insurance expense for the period is calculated based on the beginning prepaid insurance balance, the premiums paid during the current period, and the ending prepaid insurance balance. This approach ensures that the expense reflects the actual cost of insurance coverage used during the period.

Question 6

When an auditor recomputes the unexpired portion of prepaid insurance, they are satisfying which audit objective?

Accepted Answer

When an auditor recomputes the unexpired portion of prepaid insurance, they are testing accuracy and detail tie-in, as they are verifying that the recorded balance ties in with the actual amount of prepaid insurance on hand.

Question 7

The primary accounting record for property, plant, and equipment accounts is the fixed asset master file. What is included for each fixed asset in the master file?

Accepted Answer

The answer of The primary accounting record for property, plant,...

Question 8

Which balance-related audit objective is not relevant to an audit of prepaid expenses?

Accepted Answer

The balance-related audit objective of realizable value is not relevant to a prepaid expenses audit, as these are assets that are already paid for and do not involve any consideration of collectability or marketability. The other three balance-related audit objectives listed (rights, accuracy, and detail tie-in) are relevant to a prepaid expenses audit as they pertain to the ownership and valuation of the prepaid items.

Question 9

When auditing disposals of property, plant, and equipment, the search for unrecorded disposals is essential. State the four audit procedures frequently used for verifying disposals.

Accepted Answer

The answer of When auditing disposals of property, plant, and...

Question 10

The auditor receives the client's schedule of recorded disposals and then performs detail tie-in tests of the recorded disposals schedule. What procedures does the auditor perform on the client's schedule of recorded disposals?

Accepted Answer

The answer of The auditor receives the client's schedule of...

Question 11

State four of the seven specific balance-related audit objectives for property, plant, and equipment additions and, for each objective, describe one common test of details of balances.

Accepted Answer

The answer of State four of the seven specific balance-related...

Question 12

Discuss the key internal controls related to the disposal of property, plant, and equipment.

Accepted Answer

The answer of Discuss the key internal controls related to...

Question 13

Which type of audit procedure would normally be sufficient for purposes of auditing prepaid expenses and deferred charges?

Accepted Answer

Substantive analytical procedures are typically sufficient for auditing prepaid expenses and deferred charges because these accounts often have predictable patterns and relationships that can be effectively analyzed.

Question 14

When auditing prepaid insurance,

Accepted Answer

Companies often have a standard monthly journal entry to reclassify prepaid insurance as insurance expense, so the emphasis in the tests of details of balances is on identifying any unrecorded expenses or ensuring the insurance expense balance agrees with the insurance expense account in the financial statements. While significant substantive procedures may be needed if control risk is low, this is not always the case for every audit. The auditor typically does not prepare the insurance register, as this is the responsibility of management.

Question 15

State four of the seven specific balance-related audit objectives which the auditor should use as a frame of reference for tests of property, plant, and equipment acquisitions.

Accepted Answer

The answer of State four of the seven specific balance-related...

Question 16

Controls over the acquisition and recording of insurance are a part of which of the following transaction cycles?

Accepted Answer

The acquisition and payment cycle involves all transactions related to the acquisition of goods and services, including insurance. Controls in this cycle help ensure that insurance is acquired and recorded accurately and timely.

Question 17

Property, plant, and equipment is normally audited in a different manner than current asset accounts. State three reasons why this is so, and discuss the differences in how property, plant, and equipment is audited compared to current assets.

Accepted Answer

The answer of Property, plant, and equipment is normally audited...

Question 18

It is important that the auditor use various data analytics techniques in testing the entire population of fixed assets and related depreciation.

Accepted Answer

Using various data analytics techniques can help the auditor to perform a more effective and efficient audit of fixed assets and related depreciation. It allows the auditor to test the entire population of fixed assets and related depreciation, identify anomalies or irregularities, and validate the accuracy and completeness of the underlying data. This can enhance the overall quality and reliability of the audit evidence and help the auditor to form a well-supported opinion on the financial statements.

Question 19

In testing acquisitions, the auditor must understand the relevant accounting standards to insure the client adheres to accepted accounting practices for property, plant, and equipment. Describe three of the auditor's concerns in this area.

Accepted Answer

The answer of In testing acquisitions, the auditor must understand...

Question 20

In auditing depreciation expense, one of the auditor's concerns is determining that the client's calculations are correct. In making this determination, the auditor must weigh four considerations. List these four considerations.

Accepted Answer

The answer of In auditing depreciation expense, one of the...

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