AA MC

When auditing property, plant and equipment, an auditor would least likely verify that:

• Impaired items have been properly accounted for.

• The client has used proper depreciation method.

• The financial statement presentation of property, plant and equipment is appropriate.

• Items used as collateral are derecognized.

Property, plant and equipment is typically judged to be one of the accounts least susceptible to fraud because:

• The amounts recorded on the balance sheet for most companies are immaterial.

• The depreciated values are always smaller than cost.

• Internal control is inherently effectively regarding this account.

• 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:

• A thorough examination of the balances at the beginning of the year.

• Analytical procedures to verify current year additions to property and equipment.

• Tests of controls.

• Extensive tests of current year property and equipment transactions.

Which of the following combinations of procedures is an auditor most likely to perform to obtain evidence

about fixed asset addition?

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

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

• Recomputing calculations and obtaining written management representations.

• Inspecting documents and physically examining assets.

Additions to equipment are sometimes understated. Which of the following accounts would be reviewed by the auditor to gain reasonable assurance that additions are not understated?

• Accounts payable

• Depreciation expense

• Gain on disposal of equipment

• Repairs and maintenance expense

In violation of policy, the company erroneously capitalized the cost of painting its warehouse. An auditor

would most likely detect this when:

• Discussing capitalization policies with controller.

• Examining maintenance expense accounts.

• Observing that the warehouse had been painted

• Examining construction work orders that support items capitalized during the year.

Determining that proper amounts of depreciation are expensed provides assurance about management's

assertions of valuation and:

• Completeness

• Existence

• Rights and obligations

• Presentation and disclosure

The auditor may conclude that depreciation charges are insufficient by noting:

• Insured values greatly in excess of book values.

• Large numbers of fully depreciated assets.

• Continuous trade-in of relatively new assets.

• Excessive recurring losses on assets retired.

In testing for unrecorded retirements of equipment, an auditor is most likely to:

• Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment.

• Inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger.

• Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

• Select items of equipment from the accounting records and then locate them during the plant tour.

A weakness in internal control over recording of acquisitions of equipment may cause an auditor to:

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

  the year.

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

• 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.