Substantive Audit Procedures (PPE, Intangibles, Liab, SHE)

A weakness in internal accounting control over recording retirements of equipment may cause the auditor to

• Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used.

• Inspect certain items of equipment in the plant and trace those items to the accounting records.

• Select certain items of equipment from the accounting records and locate them in the plant.

• Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.

An auditor would most efficiently test for the misclassification of capital acquisitions as expenses by

• Taking a physical tour of plant facilities before starting an audit.

• Scanning repair and maintenance records and investigating large dollar-value entries.

• Reviewing company capital acquisition policies with purchasing personnel.

• Tracing capital additions back to source documents.

The most significant audit step in substantiating additions to the office furniture account balance is

• Comparison to prior year's acquisitions.

• Examination of vendors' invoices and receiving reports for current year's acquisitions.

• Review of transactions near the end of the reporting period for proper period cutoff.

• Calculation of ratio of depreciation expense to gross office equipment cost.

In testing plant and equipment balances, an auditor examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management’s assertion of

• Completeness.

• Presentation and disclosure.

• Existence or occurrence.

• Valuation and allocation.

Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions?

• Recomputing calculations and obtaining written management representations.

• Observing operating activities and comparing balances to prior period balances.

• Confirming ownership and corroborating transactions through inquiries of client personnel.

• Inspecting documents and physically examining assets.

What management assertion is violated if the client's statement of financial position includes equipment that was leased under an operating lease?

• Existence or occurrence

• Rights and obligations

• Completeness

• Classification

In auditing plant assets and accumulated depreciation for proper valuation, the auditor should do all except the following:

• Physically inspect major plant assets additions.

• Recalculate depreciation expense on a test basis.

• Vouch repairs and maintenance expense on a test basis.

• Vouch major additions by reference to underlying documentation.

The controller of PRTC, Inc., wants to use ratio analysis to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off. Which of the following ratios would best accomplish this objective?

• Depreciation expense divided by book value of manufacturing equipment.

• Accumulated depreciation divided by book value of manufacturing equipment.

• Repairs and maintenance cost divided by direct labor costs.

• Gross manufacturing equipment cost divided by units produced.

In performing a search for unrecorded retirements of fixed assets, an auditor most likely would

• Tour the client’s facilities, and then inspect the property ledger and the insurance and tax records.

• Analyze the repair and maintenance account, and then tour the client’s facilities,

• Inspect the property ledger and the insurance and tax records, and then tour the client’s facilities.

• Tour the client’s facilities, and then analyze the repair and maintenance account.

Assets may suffer an impairment in value for a variety of reasons, but not likely as a result of:

• A corporate restructuring.

• Slumping demand for uncompetitive products.

• Significant increases in market share.

• Obsolescence.