In violation of company policy, Warren Ltd erroneously capitalised the cost of painting its warehouse. The auditor examining Warren's financial report would most likely detect this when:
A) examining maintenance expense accounts.
B) observing during the physical inventory observation that the warehouse had been painted.
C) examining the construction work orders supporting items capitalised during the year.
D) discussing the capitalisation policies with Warren's financial controller.

Question

Quizplus · Accepted Answer

The auditor would most likely detect the erroneous capitalisation by examining the construction work orders supporting items capitalised during the year, as this would reveal that the painting costs were incorrectly recorded as capital expenditures instead of maintenance expenses.

In Violation of Company Policy, Warren Ltd Erroneously Capitalised the Cost