Question 1

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?
A) Depreciation expense.
B) Property tax expense.
C) Insurance expense.
D) Bad debts expense.

Accepted Answer

Bad debts expense is typically evaluated as part of the audit of the revenue and collection cycle, not the acquisition and payment cycle. The acquisition and payment cycle primarily involves the purchase of goods and services, payment of liabilities, and the related expenses such as depreciation, property taxes, and insurance.

Question 2

Debits to manufacturing equipment arise from which cycle(s)?
A) Payroll.
B) Sales and collection.
C) Inventory and warehousing.
D) Acquisition and disbursement.

Accepted Answer

Acquisition and disbursement cycles involve the purchase of assets, including manufacturing equipment, where debits to manufacturing equipment would be recorded.

Question 3

During the audit of prepaid insurance, the auditor should keep in mind that the amount in insurance expense is based on:
A) the payment of premiums during the year.
B) the ending balance in prepaid insurance.
C) the beginning balance in prepaid insurance.
D) all three of the above.

Accepted Answer

The amount in insurance expense is based on the payment of premiums during the year (A), the ending balance in prepaid insurance (B), and the beginning balance in prepaid insurance (C). These factors together determine the appropriate expense recognition for the period.

Question 4

Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?
A) Verification of depreciation expense.
B) Analytical procedures.
C) Verification of current year disposals.
D) Verification of the beginning balance in accumulated depreciation.

Accepted Answer

The answer of Which of the following is not a...

Question 5

Which of the following audit objectives is not typically a major objective in the audit of current year fixed asset additions?
A) Completeness.
B) Detail tie- in.
C) Classification.
D) Accuracy.

Accepted Answer

Detail tie-in is more concerned with ensuring that details in the accounting records match the details contained in the financial statements. In the context of auditing current year fixed asset additions, the major objectives usually include ensuring that all additions are complete (Completeness), accurately recorded (Accuracy), and properly classified (Classification). Detail tie-in, while important in the overall audit process, is not typically a major objective specifically for auditing current year fixed asset additions.

Question 6

The extent to which auditors verify current period acquisitions of property, plant and equipment normally depends upon:
A) assessed control risk for acquisitions.
B) tolerable misstatement.
C) Both A and B.
D) Neither A nor B.

Accepted Answer

The extent to which auditors verify current period acquisitions of property, plant, and equipment depends on both the assessed control risk for acquisitions and the tolerable misstatement. Control risk assessment helps auditors understand how likely it is that the client's internal controls might fail to prevent or detect material misstatements, while tolerable misstatement helps define the scope of audit procedures by determining the materiality level for specific audit areas.

Question 7

Which of the following is not likely to be a test related to the audit of manufacturing equipment?
A) Verify depreciation expense.
B) Verify current year additions.
C) Observe current year disposals.
D) Perform analytical procedures.

Accepted Answer

The answer of Which of the following is not likely...

Question 8

In rare cases, the auditor may believe it is necessary that a complete physical inventory of fixed assets be taken to make sure they actually exist. If an inventory is taken, the auditor normally:
A) requires that it be done by an outside, independent third party.
B) takes the inventory.
C) requires client to take the inventory and provide documentation to the auditor.
D) observes the count.

Accepted Answer

The auditor typically observes the count to ensure the inventory process is conducted properly and to verify the existence of the assets.

Question 9

The auditor ________ to test the accuracy or classification of fixed assets recorded in prior periods.
A) never needs
B) is required
C) normally needs
D) normally does not need

Accepted Answer

Auditors normally do not need to test the accuracy or classification of fixed assets recorded in prior periods unless there is a specific reason to do so, such as a significant related transaction in the current period or concerns about prior period errors.

Question 10

Internal controls for prepaid insurance are typically categorized into all but which of the following?
A) Controls over the insurance register.
B) Controls over the charge- off of insurance expense.
C) Controls over the acquisition and recording of insurance.
D) All of the above.

Accepted Answer

All the options listed (A, B, and C) are aspects of internal controls related to prepaid insurance, thus none of them is an exception.

Question 11

Expense accounts analysis is closely related to tests of controls and substantive tests of transactions. The major difference is:
A) that one emphasizes transactions and the other emphasizes amounts.
B) the degree of concentration on an individual account.
C) the difference in the types of underlying documentation which is examined.
D) the use or nonuse of cutoff tests.

Accepted Answer

Expense accounts analysis focuses more on individual accounts, while tests of controls and substantive tests of transactions focus on the processes and transactions as a whole.

Question 12

Once the initial audit of a newly constructed industrial plant has been performed, with respect to consistency, which of the following is of least concern to the continuing auditor in the following year?
A) Prior years' depreciable life.
B) Prior years' depreciation methods.
C) Prior years' capitalization costs.
D) Prior years' capitalization policy.

Accepted Answer

The answer of Once the initial audit of a newly...

Question 13

The approach used to verify manufacturing equipment is different than the one used to verify:
A) copyrights.
B) current assets.
C) patents.
D) all other types of property, plant, and equipment.

Accepted Answer

The answer of The approach used to verify manufacturing equipment...

Question 14

Which type of audit procedure (tests of controls, tests of transactions, tests of details, or analytical procedures) is most often sufficient for the audit of prepaid expenses?

Accepted Answer

The answer of Which type of audit procedure (tests of...

Question 15

Why does the auditor not normally test the accuracy or classification of fixed assets recorded in prior periods?

Accepted Answer

The answer of Why does the auditor not normally test...

Question 16

Auditors should be aware that the life of certain fixed assets might be reduced due to various circumstances. What circumstances might give rise to a reduction in the useful life of a fixed asset?

Accepted Answer

The answer of Auditors should be aware that the life...

Question 17

A major issue in verifying the ending balance in property, plant and equipment is the possibility of legal encumbrances. Describe the procedures that auditors may perform to obtain evidence about existing legal encumbrances.

Accepted Answer

The answer of A major issue in verifying the ending...

Question 18

What are the auditor's two main objectives in the audit of the ending balance in accumulated depreciation?

Accepted Answer

The answer of What are the auditor's two main objectives...

Question 19

Discuss the key internal controls over existing fixed assets that affect the auditor's extent of testing of fixed assets acquired in prior years.

Accepted Answer

The answer of Discuss the key internal controls over existing...

Question 20

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

Accepted Answer

The primary objective when auditing manufacturing equipment is to ensure the existence and proper valuation of the equipment, not just accuracy.

Quiz 7: Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts, Audit of the Payroll and Personnel Cycle, Audit of the Inventory and Warehousing Cycle

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?

Debits to manufacturing equipment arise from which cycle(s) ?

During the audit of prepaid insurance, the auditor should keep in mind that the amount in insurance expense is based on:

Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?

Which of the following audit objectives is not typically a major objective in the audit of current year fixed asset additions?

The extent to which auditors verify current period acquisitions of property, plant and equipment normally depends upon:

Which of the following is not likely to be a test related to the audit of manufacturing equipment?

In rare cases, the auditor may believe it is necessary that a complete physical inventory of fixed assets be taken to make sure they actually exist. If an inventory is taken, the auditor normally:

The auditor ________ to test the accuracy or classification of fixed assets recorded in prior periods.

Internal controls for prepaid insurance are typically categorized into all but which of the following?

Expense accounts analysis is closely related to tests of controls and substantive tests of transactions. The major difference is:

Once the initial audit of a newly constructed industrial plant has been performed, with respect to consistency, which of the following is of least concern to the continuing auditor in the following year?

The approach used to verify manufacturing equipment is different than the one used to verify: