Question 1

Which of the following should the client have as part of its process for estimating fair value?

Accepted Answer

A) A systematic process to identify each asset that is subject to realizable value estimation. 
B) A process to identify relevant historical values. 
C) An analysis of transactions that have taken place within the client's organization. 
D) A realistic process to estimate future cash flows to discount back to a present value. 
A) A systematic process to identify each asset that is subject to realizable value estimation. 
B) A process to identify relevant historical values. 
C) An analysis of transactions that have taken place within the client's organization. 
D) A realistic process to estimate future cash flows to discount back to a present value. D

Question 2

When assessing fair value of Level 2 assets,auditors will use information on the sale of identical items in active or inactive markets as a source of audit evidence.

Accepted Answer

A) True 
 B)False  False

Question 3

Reconciling the physical asset inventory with the property ledger on a periodic basis is a control related to which management assertion?

Accepted Answer

A) Completeness. 
B) Rights and obligations. 
C) Existence. 
D) Valuation. 
A) Completeness. 
B) Rights and obligations. 
C) Existence. 
D) Valuation. C

Question 4

Which of the following is not a circumstance indicating potential impairment of intangible assets?

Accepted Answer

A) A change in circumstances,such as the legal environment or business climate,that could affect the asset's value. 
B) An accumulation of costs that are significantly in excess of the amount originally expected to be needed to acquire or construct the asset. 
C) The asset generates just as much cash flow as in the past. 
D) Losses or projections indicating continuing losses associated with an asset used to generate revenue. 
A) A change in circumstances,such as the legal environment or business climate,that could affect the asset's value. 
B) An accumulation of costs that are significantly in excess of the amount originally expected to be needed to acquire or construct the asset. 
C) The asset generates just as much cash flow as in the past. 
D) Losses or projections indicating continuing losses associated with an asset used to generate revenue.

Question 5

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Accepted Answer

A) Determining appropriate model and sensitivity of model. 
B) Reviewing contracts to determine if loss is other than temporary. 
C) Performing an analysis of volume of trading activity. 
D) Performing an analysis of trades on similar assets. 
A) Determining appropriate model and sensitivity of model. 
B) Reviewing contracts to determine if loss is other than temporary. 
C) Performing an analysis of volume of trading activity. 
D) Performing an analysis of trades on similar assets.

Question 6

Audit approach for leases Describe the substantive procedures typically used to test leases.

Accepted Answer

General substantive procedures for lease

Question 7

Which of the following procedures is not a substantive procedure used for testing the valuation of long-lived assets?

Accepted Answer

A) Assess management's impairment estimates. 
B) Inquire of management about assets that are idle. 
C) Develop an independent estimate of amortization expense. 
D) All of the above are procedures used for testing the valuation assertion. 
A) Assess management's impairment estimates. 
B) Inquire of management about assets that are idle. 
C) Develop an independent estimate of amortization expense. 
D) All of the above are procedures used for testing the valuation assertion.

Question 8

An inherent risk related to asset impairment is that management normally does not have incentives to write down asset values.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following information should be included in management's documentation regarding intangible assets?

Accepted Answer

A) Manner of acquisition. 
B) Basis for the capitalized amount 
C) Expected period of benefit. 
D) All the above should be included. 
A) Manner of acquisition. 
B) Basis for the capitalized amount 
C) Expected period of benefit. 
D) All the above should be included.

Question 10

Intangible assets are not subject to potential impairment of value because they lack physical substance.

Accepted Answer

A) True 
 B)False

Question 11

In the FASB hierarchy of inputs to consider for assessing fair value,which is associated with Level 1?

Accepted Answer

A) Observable information on similar items. 
B) Nonexistence of active markets. 
C) Quoted prices on identical items. 
D) Relevant economic and industry factors. 
A) Observable information on similar items. 
B) Nonexistence of active markets. 
C) Quoted prices on identical items. 
D) Relevant economic and industry factors.

Question 12

The auditor selects entity-wide controls for testing,but not transaction controls specific to long-lived assets.

Accepted Answer

A) True 
 B)False

Question 13

Internal controls over long-lived assets should provide reasonable assurance that all purchases are authorized and properly valued.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following expense accounts is associated with natural resources?

Accepted Answer

A) Depreciation expense. 
B) Amortization expense. 
C) Depletion expense. 
D) Capitalization expense. 
A) Depreciation expense. 
B) Amortization expense. 
C) Depletion expense. 
D) Capitalization expense.

Question 15

The auditor performs substantive procedures related to property,plant,and equipment to determine if the assets have been pledged as collateral or title has transferred.What is the primary assertion the auditor is testing?

Accepted Answer

A) Valuation. 
B) Rights. 
C) Completeness. 
D) Existence. 
A) Valuation. 
B) Rights. 
C) Completeness. 
D) Existence.

Question 16

The auditor selects a sample of asset disposals and examines the sales documentation evidencing disposal of the equipment and recomputes gain or loss on the disposal.This audit procedure primarily tests which of the following assertions for the equipment account?

Accepted Answer

A) Existence. 
B) Presentation and disclosure. 
C) Rights. 
D) Valuation. 
A) Existence. 
B) Presentation and disclosure. 
C) Rights. 
D) Valuation.

Question 17

Audit procedures for leases consist primarily of examining lease documents to determine the substance of the lease transaction and the proper accounting treatment.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following actions is not a potential fraud scheme related to long-lived assets?

Accepted Answer

A) Impairment losses on long-lived assets are not recognized. 
B) Costs that should have been expenses are improperly capitalized. 
C) Amortization of intangible assets is miscalculated. 
D) All the above are potential fraud schemes. 
A) Impairment losses on long-lived assets are not recognized. 
B) Costs that should have been expenses are improperly capitalized. 
C) Amortization of intangible assets is miscalculated. 
D) All the above are potential fraud schemes.

Question 19

A common technique used to fraudulently misstate financial statements involves the undervaluing of existing long- lived assets.

Accepted Answer

A) True 
 B)False

Question 20

When testing the existence/occurrence assertion for long-lived assets,the focus is typically on disposals of assets that took place during the year.

Accepted Answer

A) True 
 B)False

Which of the following should the client have as part of its process for estimating fair value?

When assessing fair value of Level 2 assets,auditors will use information on the sale of identical items in active or inactive markets as a source of audit evidence.

Reconciling the physical asset inventory with the property ledger on a periodic basis is a control related to which management assertion?

Which of the following is not a circumstance indicating potential impairment of intangible assets?

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Audit approach for leases Describe the substantive procedures typically used to test leases.

Which of the following procedures is not a substantive procedure used for testing the valuation of long-lived assets?

An inherent risk related to asset impairment is that management normally does not have incentives to write down asset values.

Which of the following information should be included in management's documentation regarding intangible assets?

Intangible assets are not subject to potential impairment of value because they lack physical substance.

In the FASB hierarchy of inputs to consider for assessing fair value,which is associated with Level 1?

The auditor selects entity-wide controls for testing,but not transaction controls specific to long-lived assets.

Internal controls over long-lived assets should provide reasonable assurance that all purchases are authorized and properly valued.

Which of the following expense accounts is associated with natural resources?

The auditor performs substantive procedures related to property,plant,and equipment to determine if the assets have been pledged as collateral or title has transferred.What is the primary assertion the auditor is testing?

The auditor selects a sample of asset disposals and examines the sales documentation evidencing disposal of the equipment and recomputes gain or loss on the disposal.This audit procedure primarily tests which of the following assertions for the equipment account?

Audit procedures for leases consist primarily of examining lease documents to determine the substance of the lease transaction and the proper accounting treatment.

Which of the following actions is not a potential fraud scheme related to long-lived assets?

A common technique used to fraudulently misstate financial statements involves the undervaluing of existing long- lived assets.

When testing the existence/occurrence assertion for long-lived assets,the focus is typically on disposals of assets that took place during the year.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Legal Liability

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Term Liabilities and Stockholders Equity Transactions

Completing a Quality Audit

Audit Reports

Filters

Exam 12: Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Which of the following should the client have as part of its process for estimating fair value?

When assessing fair value of Level 2 assets,auditors will use information on the sale of identical items in active or inactive markets as a source of audit evidence.

Reconciling the physical asset inventory with the property ledger on a periodic basis is a control related to which management assertion?

Which of the following is not a circumstance indicating potential impairment of intangible assets?

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Audit approach for leases Describe the substantive procedures typically used to test leases.

Which of the following procedures is not a substantive procedure used for testing the valuation of long-lived assets?

An inherent risk related to asset impairment is that management normally does not have incentives to write down asset values.

Which of the following information should be included in management's documentation regarding intangible assets?

Intangible assets are not subject to potential impairment of value because they lack physical substance.

In the FASB hierarchy of inputs to consider for assessing fair value,which is associated with Level 1?

The auditor selects entity-wide controls for testing,but not transaction controls specific to long-lived assets.

Internal controls over long-lived assets should provide reasonable assurance that all purchases are authorized and properly valued.

Which of the following expense accounts is associated with natural resources?

The auditor performs substantive procedures related to property,plant,and equipment to determine if the assets have been pledged as collateral or title has transferred.What is the primary assertion the auditor is testing?

The auditor selects a sample of asset disposals and examines the sales documentation evidencing disposal of the equipment and recomputes gain or loss on the disposal.This audit procedure primarily tests which of the following assertions for the equipment account?

Audit procedures for leases consist primarily of examining lease documents to determine the substance of the lease transaction and the proper accounting treatment.

Which of the following actions is not a potential fraud scheme related to long-lived assets?

A common technique used to fraudulently misstate financial statements involves the undervaluing of existing long- lived assets.

When testing the existence/occurrence assertion for long-lived assets,the focus is typically on disposals of assets that took place during the year.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Legal Liability

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Term Liabilities and Stockholders Equity Transactions

Completing a Quality Audit

Audit Reports

Filters