Question 1

The primary accounting record for property, plant, and equipment accounts is the fixed asset master file. What is included for each fixed asset in the master file?

Accepted Answer

The answer of The primary accounting record for property, plant,...

Question 2

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 3

Accrued payroll taxes are normally considered to be associated with the acquisition and payment cycle.

Accepted Answer

Accrued payroll taxes are typically part of the acquisition and payment cycle because they are expenses that accrue over a period of time and are paid to government agencies on behalf of employees.

Question 4

In auditing the current year acquisitions of property, plant, and equipment, all balance-related audit objectives except realizable value and disclosure are used as a framework for subsequent audit testing.

Accepted Answer

This statement is true. All balance-related audit objectives except for realizable value and disclosure are used as a framework for subsequent audit testing when auditing the current year acquisitions of property, plant, and equipment. Realizable value is not applicable to property, plant, and equipment because they are not typically sold, and disclosure is a separate objective that focuses on the adequacy and completeness of the financial statement disclosures related to the property, plant, and equipment accounts.

Question 5

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

Accepted Answer

One of the key objectives when auditing manufacturing equipment is to ensure that all equipment is included in the audit, and there are no omissions or gaps in the audit process. Therefore, completeness is a critical component of auditing manufacturing equipment.

Question 6

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?
A) Extraordinary repairs have lengthened the life of an asset.
B) Prior years' depreciation charges were erroneously understated.
C) A reserve for possible loss on retirement has been recorded.
D) An asset has been recorded at its fair value.

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 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 amount recorded in the balance sheet, so it is verified as part of tests of details of balances, which focus on the accuracy and completeness of the ending balances in the accounts. Tests of controls and substantive tests of transactions, on the other hand, are focused on the effectiveness of internal controls and the validity and occurrence of transactions, respectively.

Question 8

The auditor receives the client's schedule of recorded disposals and then performs detail tie-in tests of the recorded disposals schedule. What procedures does the auditor perform on the client's schedule of recorded disposals?

Accepted Answer

The answer of The auditor receives the client's schedule of...

Question 9

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

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

Question 10

In testing acquisitions, the auditor must understand the relevant accounting standards to insure the client adheres to accepted accounting practices for property, plant, and equipment. Describe below the auditor concerns in this area.

Accepted Answer

The answer of In testing acquisitions, the auditor must understand...

Question 11

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 statement is correct. The client-prepared schedule of all acquisitions recorded in the general ledger during the year is typically used as the starting point for verifying current-year acquisitions of property, plant, and equipment during the audit process.

Question 12

State four of the seven specific balance-related audit objectives for property, plant, and equipment additions and, for each objective, describe one common test of details of balances.

Accepted Answer

The answer of State four of the seven specific balance-related...

Question 13

When auditing disposals of property, plant, and equipment, the search for unrecorded disposals is essential. State the four audit procedures frequently used for verifying disposals.

Accepted Answer

The answer of When auditing disposals of property, plant, and...

Question 14

The least helpful common audit test to verify current period acquisitions of property, plant, and equipment is examining vendors' invoices and receiving reports.

Accepted Answer

Examining vendors' invoices and receiving reports is actually one of the most helpful tests to verify current period acquisitions of property, plant, and equipment. This provides evidence of the actual purchase and the cost associated with it. Other tests can be used in conjunction with this one, such as physical inspection, reconciliation of purchase orders and payment records, and reviewing depreciation schedules.

Question 15

Property, plant, and equipment is normally audited in a different manner than current asset accounts. State three reasons why this is so, and discuss the differences in how property, plant, and equipment is audited compared to current assets.

Accepted Answer

The answer of Property, plant, and equipment is normally audited...

Question 16

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

Accepted Answer

Completeness and existence are indeed two of the primary objectives in auditing manufacturing equipment. Other objectives may include accuracy, valuation, and presentation and disclosure.

Question 17

If the client fails to record disposals of property, plant, and equipment, both the original cost of the asset account and the net book value will be incorrect. What will the effect be of this misstatement on the original cost and the book value?
A) Both will be overstated indefinitely.
B) The original cost will be overstated indefinitely, and the net book value will be overstated until the asset is fully depreciated.
C) The original cost will be overstated indefinitely, and the net book value will be understated indefinitely.
D) The original cost will be overstated indefinitely, and the net book value will be understated until the asset is fully depreciated.

Accepted Answer

If disposals are not recorded, the original cost of the asset account will not be reduced, leading to an overstatement of the original cost. On the other hand, the accumulated depreciation account will be correct, causing the net book value to be overstated until the asset is entirely depreciated. Therefore, Choice B is the right answer.

Question 18

The auditor's review of current year acquisition's cutoff is normally done as part of accounts payable cutoff tests.

Accepted Answer

The auditor's review of current year acquisition's cutoff is typically done as part of accounts payable cutoff tests, as these tests are designed to ensure that expenses are recorded in the appropriate period.

Question 19

In auditing depreciation expense one the auditors concerns is on determining that the client's calculations are correct. In determining that the auditor must weigh which four considerations?

Accepted Answer

The answer of In auditing depreciation expense one the auditors...

Question 20

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.

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