Investing Cycle Part 2

When an auditor has few property and equipment transactions during the year, the continuing auditor usually carries out

• A complete review of the related internal controls and performs test of controls

• A complete review of the related internal controls and performs analytical review tests

• Preliminary review of related internal controls and thorough examination of beginning balances

• Preliminary review of related internal controls and extensive test of current year transactions

The auditor’s procedure to search for unrecorded retirement of property, plant and equipment is consistent with the auditor’s objective of auditing which financial statement assertion over PPE?

• Existence

• Completeness

• Valuation

• Rights and Obligation

You were assigned to audit the property, plant and equipment of Huskies Incorporated for the year ended December 31, 2022. Which of the following is the least audit objective when auditing manufacturing equipment and the related depreciation and accumulated depreciation?

• To determine whether costs and related depreciation for all significant retirements, abandonments, and disposals of property have been properly recorded

• To determine whether the balances in the property accounts, including the amounts carried forward from the preceding year, are properly stated

• To determine whether additions represent properties that are installed, constructed or rented

• To determine whether the balances in accumulated depreciation accounts are reasonable, considering expected useful lives of property units and possible net salvage values

The auditor is most likely to seek information from the plant manager with respect to the:

• Adequacy of provision for uncollectible accounts

• Existence of obsolete machinery.

• Appropriateness of physical inventory observation procedures.

• Deferral of procurement of certain necessary insurance coverage.

Which of the following accounts should be reviewed by the auditor to gain reasonable assurance that additions to property, plant, and equipment are not understated?

• Depreciation

• Accounts payable

• Cash

• Repairs

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

• Examination of insurance policies

• Review of repairs and maintenance expense

• Review of property tax files

• Scanning of invoices for fixed asset additions

In testing the reasonableness of the client’s depreciation charges under straight-line method in line with your audit of the client's property, plant and equipment, which of the following might indicate that depreciation in the current and prior years might have been understated?

• The client uses too long of a useful life in depreciating its assets as indicated by the many fully depreciated assets still in records and are still being used.

• The client uses too short of a useful life in depreciating its assets as indicated by its recurring experience of recognizing excessive retirement losses on its assets.

• Similar company within the same industry utilizing relatively the same set of equipment uses the diminishing method of depreciation.

• The client uses too long of a useful life in depreciating its assets as indicated by its recurring experience of recognizing excessive retirement losses on its assets.

In your audit of a manufacturing client’s property, plant and equipment, you are suspecting that there is a high likelihood of significant missing permanent assets that are still recorded on the accounting records, an appropriate procedure is to _____, this is necessary to support the financial statement assertion of ______ over PPE.

• Select sample from the asset master file and vouch to the documents verifying the acquisition; existence

• Select sample from the asset master file and vouch to the physical assets; existence

• Tracing the physical asset noted during the ocular inspection to the asset master file; completeness

• Tracing the acquisition documents to the asset master file; completeness

The auditor’s audit program for substantive test procedures for auditing intangibles include an examination of the schedule of current year charges to the research and development expense account. Which of the following is correct?

• The auditor shall test the propriety of the charges to the research and development expense to support the existence assertion over intangible assets.

• The auditor shall trace the charges to the research and development expense account to the supporting documents in support to the valuation assertion over intangible assets.

• Examining the entries to the research and development expense account is necessary to ascertain whether no capitalizable costs to the intangible asset account had been erroneously charged by the client to the research and development expense account which is necessary to support the completeness assertion over intangible assets.

• Examining the entries to the research and development expense account is necessary to evaluate whether these transactions have been authorized to support the accuracy assertion of the recorded expense.

Which statement is incorrect regarding audit of

property, plant and equipment?

• Property, plant and equipment is typically judged to be one of the accounts least susceptible to fraud because the inherent risk is usually low.

• When few property and equipment transactions occur during the year the continuing auditor usually obtains an understanding of internal control and performs extensive tests of current year property and equipment transactions.

• Determining that proper amounts of depreciation are expensed provides assurance about management’s assertions of valuation and presentation and disclosure.

• In testing for unrecorded retirements of equipment, an auditor is most likely to inspect certain items of equipment in the plant and trace those items to the accounting records.