Question 1

Depreciation expense is normally verified using tests of controls and substantive tests of transactions.

Accepted Answer

Depreciation expense is not tested through substantive tests of transactions as it is a non-cash expense and does not involve a specific transaction. Rather, it is tested through substantive analytical procedures and tests of controls over the process of calculating and recording depreciation.

Question 2

The audit procedure 'foot the loans payable list and trace the totals to the general ledger' is performed when verifying the accuracy objective for loans payable.

Accepted Answer

The answer of The audit procedure 'foot the loans payable...

Question 3

The accuracy objective for share transactions is ordinarily tested by confirming the amount with the share transfer agent.

Accepted Answer

The accuracy objective for share transactions is commonly verified by verifying the quantity with the share transfer agent.

Question 4

When auditing owners' equity, the rights and obligations objective is not applicable.

Accepted Answer

The rights and obligations objective is not applicable to owners' equity because owners' equity represents the residual interest in the assets of the entity after deducting liabilities. The rights and obligations objective is concerned with the completeness and accuracy of the recording of assets and liabilities, which are not directly related to owners' equity.

Question 5

When auditing owners' equity, the realisable value objective is not applicable.

Accepted Answer

The realisable value objective is applicable to the audit of assets, particularly inventory and receivables. It is not applicable to the audit of owners' equity. The audit of owners' equity focuses on verifying the accuracy and completeness of transactions related to equity accounts, such as share capital, retained earnings, and reserves. The realisable value objective is not relevant in this context.

Question 6

The procedure of comparing the total balance in loans payable, interest expense, and accrued interest with the prior year is to identify possible misstatements of interest expense, accrued interest, or loans payable.

Accepted Answer

Comparing the total balance in loans payable, interest expense, and accrued interest with the prior year can help identify possible misstatements in these accounts that could affect the accuracy of financial statements. This procedure can reveal errors, omissions, or fraud related to interest expense, accrued interest, or loans payable. Therefore, it is an essential part of the audit process to ensure the reliability of financial information.

Question 7

The three most important balance-related audit objectives for loans payable are existence, realisable value, and accuracy.

Accepted Answer

The three most important balance-related audit objectives for loans payable are existence, completeness, and valuation and allocation. Realisable value and accuracy are not specifically categorized under the primary objectives for loans payable.

Question 8

When the results of analytical procedures for loans payable are favourable, tests of details for the related interest expense and accrued interest can frequently be eliminated.

Accepted Answer

When the results of analytical procedures for loans payable are favorable, it indicates that the balance and activity in the loan account are reasonable, and there is no significant misstatement in the amount of interest expense and accrued interest. Hence, tests of details for the related interest expense and accrued interest can be eliminated.

Question 9

Examining company policies is an example of an audit procedure in auditing accrued liabilities.

Accepted Answer

Auditing accrued liabilities involves reviewing the company's financial statements, examining supporting documents, and testing the accuracy of recorded amounts. Examining company policies related to the recognition and measurement of accrued liabilities is a necessary audit procedure to ensure compliance with accounting standards and identify any potential misstatements or errors.

Question 10

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

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

Question 11

The audit procedure 'examine due dates on duplicate copies of loans payable to determine whether all or part of the loans are a noncurrent liability' is performed when verifying the classification objective for loans payable.

Accepted Answer

The audit procedure 'examine due dates on duplicate copies of loans payable to determine whether all or part of the loans are a noncurrent liability' is specifically related to verifying the classification objective for loans payable. Therefore, the statement is true.

Question 12

The emphasis in the audit of dividends is on the transactions rather than the ending balance.

Accepted Answer

The audit of dividends focuses on the transactions (e.g. declarations, distributions, and payments) rather than the ending balance, which is typically a result of these transactions. The audit aims to ensure that dividends were properly authorized, recorded, and classified in the financial statements.

Question 13

Recording of 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 not only the balance sheet through incorrect asset and possibly equity values but also the income statement over time due to incorrect depreciation expense, which impacts net income.

Question 14

A shareholders' master file is a record of the issuance and redemption of shares over the life of the corporation.

Accepted Answer

The answer of A shareholders' master file is a record...

Question 15

The audit procedure 'examine loans paid after year-end to determine whether they were liabilities at the balance sheet date' is performed when verifying the completeness objective for loans payable.

Accepted Answer

This audit procedure aligns with the completeness objective as it aims to ensure that all liabilities that existed at the balance sheet date are properly recorded in the financial statements.

Question 16

The most important audit objective for depreciation expense is completeness.

Accepted Answer

The most important audit objective for depreciation expense is accuracy, as it ensures the depreciation calculations are correct and reflect the asset's consumption over its useful life. Completeness is more relevant to ensuring all assets that should be depreciated are included in the calculation.

Question 17

The realisable value balance-related audit objective is not applicable when auditing loans payable.

Accepted Answer

The realisable value balance-related audit objective primarily concerns assets and their valuation, ensuring assets are not overstated. It is not directly applicable to liabilities such as loans payable, which are evaluated for completeness and accuracy rather than realisable value.

Question 18

While analytical procedures are commonly used when auditing prepaid expenses and deferred charges, they are rarely sufficient in themselves.

Accepted Answer

The answer of While analytical procedures are commonly used when...

Question 19

The audit of dividends transactions is typically performed using attributes sampling.

Accepted Answer

The answer of The audit of dividends transactions is typically...

Question 20

One unique characteristic of the capital acquisition and repayment cycle is that relatively few transactions affect the account balances, but each transaction is often highly material in amount.

Accepted Answer

This statement is true. Capital acquisition and repayment typically involve significant amounts of money, and each transaction can have a large impact on the account balances. However, there are usually not as many transactions in this cycle compared to others, such as revenue and expense cycles.

Quiz 16: Audit of transaction cycles and financial statement balances II