Question 1

The emphasis in auditing manufacturing equipment is on the verification of current-period disposals and acquisitions.

Accepted Answer

In auditing manufacturing equipment, the emphasis is indeed on verifying the accuracy and completeness of records related to current-period disposals and acquisitions to ensure that the financial statements accurately reflect the company's assets and any changes to them during the period.

Question 2

Auditors verify and emphasize current additions of equipment. Which of the following is not a reason for this verification and emphasis?

Accepted Answer

The balance carried forward in the equipment account from the previous year is not a reason for verifying and emphasizing current additions of equipment. The focus is on the current acquisitions made during the period being audited.

Question 3

The primary characteristic that distinguishes property, plant, and equipment from inventory, prepaid expenses, and investments is the intention to use property, plant, and equipment as a part of the operations of the client's business over their expected life.

Accepted Answer

Property, plant, and equipment are tangible assets needed for the long-term operations of a business, while inventory, prepaid expenses, and investments are used for shorter-term purposes. The intention to use property, plant, and equipment in the operations of the business over their expected lives is what distinguishes them from other types of assets.

Question 4

Confirmations are commonly used to verify additions of property, plant, and equipment.

Accepted Answer

Confirmations are typically used to verify account balances and transactions with external parties, not for verifying additions of property, plant, and equipment, which are usually verified through invoices, contracts, and physical inspections.

Question 5

Completeness and existence are the auditor's primary objectives in auditing manufacturing equipment.

Accepted Answer

The auditor's primary objectives in auditing manufacturing equipment are completeness and existence, as stated in the question. Completeness means ensuring that all existing manufacturing equipment is accounted for, while existence means verifying that the reported equipment actually exists and is in use.

Question 6

The auditor's tests for proper cutoff of current year acquisitions of property, plant, and equipment are usually done as part of accounts payable cutoff tests.

Accepted Answer

The auditor's tests for proper cutoff of current year acquisitions of property, plant, and equipment are usually done as part of accounts payable cutoff tests. This is because the accounts payable cutoff tests ensure that transactions are recorded in the proper period and that expenses associated with those transactions are properly recognized. The proper cutoff of acquisitions of property, plant, and equipment is important to ensure that these assets are properly recorded on the balance sheet and that any associated expenses are properly recognized in the proper period.

Question 7

Depreciation expense is normally verified as a part of tests of details of balances rather than as part of tests of controls or substantive tests of transactions.

Accepted Answer

Depreciation expense is an account balance that reflects the allocation of the cost of an asset over its useful life. Therefore, it is typically subject to tests of details of balances to ensure that the amount recorded in the balance sheet is accurate and reflects the appropriate amount of depreciation expense for the period. Tests of controls and substantive tests of transactions, on the other hand, are used to assess the effectiveness of internal controls over specific transaction cycles, and are not directly related to the accuracy of account balances.

Question 8

One of the primary objectives in examining the repairs and maintenance accounts is to obtain evidence that

Accepted Answer

Examining the repairs and maintenance accounts helps in obtaining evidence that expenditures of equipment have not been charged to expense. This ensures that capital expenditures on equipment have been properly classified and recorded in the books. B and C are not the primary objectives in examining the repairs and maintenance accounts. D is partly correct, but it does not cover all the aspects of examining repairs and maintenance accounts.

Question 9

The company's choices for determining the fixed asset's useful life and residual value impact the amount of depreciation recorded.

Accepted Answer

The useful life and residual value of a fixed asset are factors that affect the calculation of depreciation expense. The longer the useful life and the higher the residual value, the lower the amount of depreciation expense recorded each year. On the other hand, a shorter useful life and lower residual value result in a higher depreciation expense. Therefore, the company's choices for these factors directly impact the amount of depreciation recorded.

Question 10

The auditor's main objectives in the verification of the sale, trade-in, or abandonment of equipment are to gather sufficient appropriate evidence that all disposals are ________ and at the ________.

Accepted Answer

The auditor aims to ensure that all disposals of equipment are properly recorded in the financial statements at the correct amounts, which includes verifying that the disposal transactions are recorded at the appropriate amounts reflecting any gains or losses.

Question 11

Which of the following information would not be included, generally, in a fixed asset master file for a piece of equipment?

Accepted Answer

A fixed asset master file for a piece of equipment typically includes information such as the date of acquisition, cost, location, depreciation, maintenance history, and disposal information. A copy of the supplier's sales proposal for the equipment is not generally included in this file.

Question 12

The most important audit objective for depreciation expense is detail tie-in.

Accepted Answer

The most important audit objective for depreciation expense is accuracy, as it ensures the depreciation calculations are correct and in accordance with the relevant accounting standards. Detail tie-in is more concerned with verifying that details in the accounting records match the details in the supporting documentation.

Question 13

Which of the following is not one of the reasons auditors verify equipment differently from current asset accounts?

Accepted Answer

The reason auditors verify equipment differently from current asset accounts is not because current assets are subject to liens and encumbrances while equipment is not. The other three reasons mentioned are valid reasons why auditors verify equipment differently from current asset accounts.

Question 14

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

Accepted Answer

Significant debits to an accumulated depreciation account might occur due to extraordinary repairs that have lengthened the life of an asset. This would result in an increase in the total accumulated depreciation of the asset.

Question 15

The audit procedure "foot the schedule of fixed assets acquisitions and trace the total to the general ledger" relates most closely to the completeness objective for fixed assets acquisitions.

Accepted Answer

This procedure relates more closely to the accuracy and existence objectives, as it ensures that the total acquisitions recorded in the schedule accurately exist and are correctly totaled and recorded in the general ledger, rather than ensuring all acquisitions have been recorded (completeness).

Question 16

One of the auditor's primary objectives when auditing manufacturing equipment is completeness.

Accepted Answer

The completeness of manufacturing equipment is indeed one of the primary objectives of the auditor when conducting an audit. This includes ensuring that all equipment is on the balance sheet, properly classified, and accurately valued.

Question 17

One of the reasons that auditors verify equipment differently from current assets is the amount of any given equipment acquisition is often material.

Accepted Answer

Auditors often verify equipment differently from current assets because equipment acquisitions can be material in amount, meaning they have a significant impact on the financial statements. Therefore, auditors may need to perform more extensive testing and verification procedures to ensure their accuracy.

Question 18

The transportation and installation costs for a piece of equipment should be charged to an expense account.

Accepted Answer

The transportation and installation costs for a piece of equipment should be capitalized as part of the asset's cost, not expensed immediately.

Question 19

Depreciation amounts are determined by exchange transactions with outside parties.

Accepted Answer

Depreciation amounts are not determined by exchange transactions with outside parties. They are determined by the estimated useful life and salvage value of the asset, as well as the chosen depreciation method.

Question 20

The starting point for the verification of current-year acquisitions of property, plant, and equipment is normally a client-prepared schedule of all acquisitions recorded in the general ledger during the year.

Accepted Answer

It is generally true that the starting point for the verification of current-year acquisitions of property, plant, and equipment is a client-prepared schedule of all acquisitions recorded in the general ledger during the year. This schedule can provide auditors with a list of assets to verify, as well as details about the cost, date of acquisition, and other relevant information. However, auditors may also need to examine supporting documentation, such as purchase orders, invoices, and contracts, in order to verify the accuracy and completeness of the information provided in the schedule.

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