Question 1

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 can be explained by the retirement of fully depreciated assets during the year.

Question 2

Testing a sample of repairs and maintenance items to ensure that they were properly classified as repairs as opposed to property,plant,and equipment tests which of the following assertions for the property,plant,and equipment account?

Accepted Answer

The assertion of completeness is relevant in testing the classification of repairs and maintenance items as property, plant, and equipment. This is because if repairs and maintenance items are classified as property, plant, and equipment, it would lead to an overstatement of the completeness of the account since such items are expensed immediately as opposed to being capitalized.

Question 3

In an interview with the plant manager regarding operations,the auditor is most likely to obtain evidence that raises concerns regarding

Accepted Answer

The answer of In an interview with the plant manager...

Question 4

Testing a sample of repairs and maintenance expense items to ensure that they were properly classified as repairs as opposed to property,plant,and equipment tests which of the following assertions for the repairs and maintenance expense account?

Accepted Answer

The answer of Testing a sample of repairs and maintenance...

Question 5

Which of the following best describes the independent auditor's approach to obtaining satisfaction concerning depreciation expense in the income statement?

Accepted Answer

The independent auditor's approach to obtaining satisfaction concerning depreciation expense in the income statement is to establish the reasonableness of useful lives and depreciation methods for depreciable assets and recomputing depreciation expense. This approach ensures that the depreciation expense recorded in the income statement is accurate and consistent with generally accepted accounting principles. The auditor may also verify the mathematical accuracy of the amounts charged to income as a result of depreciation expense, but this is not the primary approach. Additionally, reconciling the amount of depreciation expense to those amounts credited to accumulated depreciation accounts is important, but it does not ensure the reasonableness of the useful lives and depreciation methods used. Therefore, option D is the best choice.

Question 6

By selecting a sample of additions to property,plant,and equipment and then examining the related vendor invoices,the auditor is testing which of the following assertions for property,plant,and equipment?

Accepted Answer

By examining vendor invoices for selected additions to property, plant, and equipment, the auditor is testing whether these transactions actually occurred, which relates to the occurrence assertion. The completeness assertion would be tested by examining all additions to property, plant, and equipment to ensure that no items were omitted. The cutoff assertion refers to transactions being recorded in the correct period, which may not be directly tested by examining vendor invoices for additions. The classification assertion refers to items being recorded in the correct account categories, not necessarily whether the transactions actually occurred.

Question 7

In performing a search for unrecorded retirements of fixed assets,an auditor most likely would

Accepted Answer

The most effective way to search for unrecorded retirements of fixed assets is to perform a physical inspection of the assets by touring the client's facilities and then compare the results with the property ledger. The auditor should also review other records related to the fixed assets, such as insurance and tax records, to identify any discrepancies or missing assets. Analyzing the repair and maintenance account may provide some leads, but it is not as reliable as inspecting the assets themselves. Therefore, choice A is the best option.

Question 8

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?

Accepted Answer

The answer of Which of the following explanations most likely...

Question 9

Which of the following is the best evidence of real estate ownership at the balance sheet date?

Accepted Answer

Paid real estate tax bills provide evidence of ownership and a legal obligation to pay taxes on the property, which is a key indicator of ownership. The other options provide some evidence of ownership but may not necessarily provide a clear indication of current ownership.

Question 10

Which of the following audit procedures would be least likely to lead the auditor to find unrecorded fixed asset disposals?

Accepted Answer

Review of repairs and maintenance expense is least likely to lead the auditor to find unrecorded fixed asset disposals as expenses related to repairs and maintenance are not directly related to disposals of fixed assets. A, C, and D are all procedures that could potentially lead the auditor to find evidence of fixed asset disposals. Examination of insurance policies may indicate a policy cancellation due to the disposal of an asset. Review of property tax files may show a decrease in assessed value or tax liability due to the disposal of an asset. Scanning of invoices for fixed asset additions may show evidence of a purchase to replace a previously owned fixed asset, indicating that the previously owned asset was disposed of.

Question 11

In testing plant and equipment balances,an auditor may inspect new additions listed on the analysis of plant and equipment.This procedure is designed to obtain evidence concerning management's assertion(s)about

Accepted Answer

Inspecting new additions listed on the analysis of plant and equipment helps the auditor to gather evidence concerning the existence or occurrence assertion, as the auditor is verifying whether the new additions actually exist and whether they have been added to the plant and equipment balances. This procedure does not provide evidence regarding the presentation and disclosure assertion, as it only focuses on verifying the existence of assets. Therefore, option B, existence or occurrence, is the best choice.

Question 12

Determining that proper amounts of depreciation are expensed provides assurance about management's assertions of presentation and disclosure and

Accepted Answer

Proper amounts of depreciation ensure that assets are valued correctly and allocated properly, supporting management's assertions related to valuation and allocation. It does not provide assurance about completeness (B), rights and obligations (C), or existence (D) of assets.

Question 13

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all

Accepted Answer

The answer of An auditor analyzes repairs and maintenance accounts...

Question 14

Which of the following is the most important control activity over acquisitions of property,plant,and equipment?

Accepted Answer

The answer of Which of the following is the most...

Question 15

Due to a weakness observed in internal control over recording retirements of equipment,the auditor may decide to

Accepted Answer

The answer of Due to a weakness observed in internal...

Question 16

If the ratio of repairs and maintenance expense to property,plant,and equipment is higher than expected,which of the following is a plausible explanation?

Accepted Answer

Charging an addition to a building to repairs and maintenance expense, instead of capitalizing it as part of the property, plant, and equipment, would inappropriately inflate the repairs and maintenance expense, leading to a higher than expected ratio.

Question 17

Auditors will examine the insurance register primarily to

Accepted Answer

The primary purpose of examining the insurance register is to ensure that prepaid insurance is properly stated by examining policy expiration dates. While auditors may also check that dollar coverage amounts are adequate, ensure that all assets are insured, and check for any related party transactions with insurance agents, these are not the primary purposes of examining the insurance register.

Question 18

The controller of Excello Manufacturing,Inc.,wants to use ratio analysis to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off.Which of the following ratios would best accomplish this objective?

Accepted Answer

The answer of The controller of Excello Manufacturing,Inc.,wants to use...

Question 19

In testing for unrecorded retirements of equipment,an auditor most likely would

Accepted Answer

The answer of In testing for unrecorded retirements of equipment,an...

Question 20

If the ratio of insurance expense to related property,plant,and equipment is higher than expected,which of the following is a plausible explanation?

Accepted Answer

Including expenses related to product liability insurance in PP&E insurance expense would increase the ratio of insurance expense to related PP&E.

Quiz 14: Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment