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

Recording an acquisition of a fixed asset at an improper amount affects the balance sheet until the company disposes of the asset, but the income statement is not affected.

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

In testing acquisitions the auditor needs to understand the appropriate accounting guidance related to acquisition accounting. Which of the following is NOT an accounting consideration for the auditor as regards to acquisition cost?

In determining the reasonableness of the client's amount for depreciation expense the auditor is primarily concerned that the client has followed a consistent policy and the calculations are correct. Which of the following audit objectives best addresses the above concerns?

One very useful method of auditing depreciation is to use an analytical procedure to test for reasonableness.

Tests of controls provide an indication of the likelihood of misstatements in both the income statement and the balance sheet, simultaneously.

Which of the following would offer the best evidence of owning real estate as of the balance sheet date?

Accrued payroll taxes are normally considered to be associated with the acquisition and payment cycle.

Describe two ways the verification of existence and tests for omissions of the client's insurance policies in force can be performed.

A major consideration in verifying the ending balance in fixed assets is the possibility of existing legal encumbrances. Tests to identify possible legal encumbrances would satisfy the audit objective of:

If the client fails to record disposals of property, plant, and equipment, both the original cost of the asset account and the net book value will be incorrect. What will the effect be of this misstatement on the original cost and the book value?

In auditing the current year acquisitions of property, plant, and equipment, all balance-related audit objectives except realizable value and disclosure are used as a framework for subsequent audit testing.

Which of the following statements about the audit of fixed assets is the least correct?

The most important audit objective for depreciation expense is detail tie-in.

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

Property, plant, and equipment is normally audited in a different manner than current asset accounts. State three reasons why this is so, and discuss the differences in how property, plant, and equipment is audited compared to current assets.

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 below the auditor concerns in this area.

The auditor's review of current year acquisition's cutoff is normally done as part of accounts payable cutoff tests.

The auditor must know the client's capitalization policies to determine whether acquisitions are:

The auditor is testing for unrecorded retirements/disposals of equipment. Which of the following audit procedures would the auditor most likely use?