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

The accounting rules related to goodwill impairment testing were recently changed by the Financial Accounting Standards Board (FASB) simplifying, for auditor's, the process of auditing management's estimates related to potential goodwill impairment.

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Question 1

Correct Answer:

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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 three of the auditor's concerns in this area.

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Question 2

Correct Answer:

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• inclusion of material transportation and installation costs as part of the asset's acquisition cost
• failure to properly record the trade-in of existing equipment
• client's capitalization policy to determine whether acquisitions are treated consistently with those of the preceding year
• examine whether the client has the right to record the equipment as an asset (Capitalization of leased equipment or classification of the equipment as an operating lease)
• Correct classification among various equipment accounts
• Improper inclusion of transactions that should be recorded as assets in repairs and maintenance expense, lease expense, supplies, small tools, and similar accounts

The primary accounting record for manufacturing equipment and other fixed assets is the

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Question 3

Correct Answer:

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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.

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Question 4

A balance-related audit objective in property, plant, and equipment includes the proper classification of these assets on the balance sheets. The auditor should therefore examine vendors' invoices in various property, plant, and equipment accounts to ensure that such invoices are classified, properly, as building, manufacturing, office equipment, or repairs.

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Question 5

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

(Multiple Choice)

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Question 6

In the audit of property, plant, and equipment, auditors need to examine if the client has the right to record these assets as assets on the balance sheet. The auditor needs to examine any lease agreements associated with these assets to determine if the lease qualifies as a finance or an operating lease.

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Question 7

Which of the following accounts would normally not be a part of the acquisition and payment cycle of prepaid insurance?

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Question 8

The intent to use property, plant, and equipment as part of the operations of a client's business is a significant characteristic that differentiates these assets from other assets like inventory and prepaid expenses.

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Question 9

The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective?

(Multiple Choice)

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Question 10

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

(Multiple Choice)

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Question 11

Which of the following information would not be included, generally, in a fixed asset master file for a piece of equipment?

(Multiple Choice)

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Question 12

State four of the seven specific balance-related audit objectives which the auditor should use as a frame of reference for tests of property, plant, and equipment acquisitions.

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Question 13

The auditor's main objectives in the verification of the sale, trade-in, or abandonment of equipment are to gather sufficient appropriate evidence that all disposals are and at the .

(Multiple Choice)

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Question 14

The company's choices for determining the fixed asset's useful life and residual value impact the amount of depreciation recorded.

(True/False)

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Question 15

In auditing depreciation expense, one of the auditor's concerns is determining that the client's calculations are correct. In making this determination, the auditor must weigh four considerations. List these four considerations.

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Question 16

In determining whether goodwill should be tested for impairment, companies and their management consider qualitative factors second, after performing a quantitative test for impairment.

(True/False)

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Question 17

Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file?

(Multiple Choice)

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Question 18

The emphasis in auditing manufacturing equipment is on the verification of current-period disposals and acquisitions.

(True/False)

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Question 19

Typically, analytical procedures are the primary means of verifying income statement accounts resulting from allocations.

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Question 20

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

The accounting rules related to goodwill impairment testing were recently changed by the Financial Accounting Standards Board (FASB) simplifying, for auditor's, the process of auditing management's estimates related to potential goodwill impairment.

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 three of the auditor's concerns in this area.

The primary accounting record for manufacturing equipment and other fixed assets is the

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.

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

Which of the following accounts would normally not be a part of the acquisition and payment cycle of prepaid insurance?

The intent to use property, plant, and equipment as part of the operations of a client's business is a significant characteristic that differentiates these assets from other assets like inventory and prepaid expenses.

The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective?

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

Which of the following information would not be included, generally, in a fixed asset master file for a piece of equipment?

State four of the seven specific balance-related audit objectives which the auditor should use as a frame of reference for tests of property, plant, and equipment acquisitions.

The auditor's main objectives in the verification of the sale, trade-in, or abandonment of equipment are to gather sufficient appropriate evidence that all disposals are ________ and at the ________.

The company's choices for determining the fixed asset's useful life and residual value impact the amount of depreciation recorded.

In auditing depreciation expense, one of the auditor's concerns is determining that the client's calculations are correct. In making this determination, the auditor must weigh four considerations. List these four considerations.

In determining whether goodwill should be tested for impairment, companies and their management consider qualitative factors second, after performing a quantitative test for impairment.

Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file?

The emphasis in auditing manufacturing equipment is on the verification of current-period disposals and acquisitions.

Typically, analytical procedures are the primary means of verifying income statement accounts resulting from allocations.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

Filters

The auditor's main objectives in the verification of the sale, trade-in, or abandonment of equipment are to gather sufficient appropriate evidence that all disposals are and at the .