Question 1

The most effective and efficient audit approach in the examination of the income statement would be which of the following?

Accepted Answer

A) Examine income statement accounts concurrently with the related balance sheet accounts. 
B) Compare company's components of net income to other businesses in the same industry. 
C) Compare company's components of net income to the previous two years. 
D) Examine changes in all balance sheet accounts.

Question 2

You are auditing the acquisition and payment cycle and note the presence of excessive recurring losses on retired assets.You may conclude that:

Accepted Answer

A) insured values are greater than book values. 
B) there are a large number of fully depreciated assets. 
C) depreciation charges may by insufficient. 
D) company has a policy of selling relatively new assets.

Question 3

The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are:

Accepted Answer

A) accounts payable. 
B) accounts receivable. 
C) unearned liabilities. 
D) accrued liabilities.

Question 4

In the audit of accrued property taxes, the two most important balance-related audit objectives are completeness and accuracy.

Accepted Answer

A) True 
 B)False

Question 5

The starting point for the verification of current-year acquisitions of property, plant, and equipment is normally a client-prepared schedule of all acquisitions recorded in the general ledger during the year.

Accepted Answer

A) True 
 B)False

Question 6

State four of the seven specific balance-related audit objectives for property, plant, and equipment additions and, for each objective, describe one common test of details of balances.

Accepted Answer

The answer of State four of the seven specific balance-related...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The approach to auditing patents and copyrights is similar to that used for property, plant, and equipment accounts.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) Select items from the fixed asset master file and then physically locate them. 
B) Examine the repairs and maintenance amount for large debits. 
C) Compare current years depreciation expense with the previous year's depreciation expense. 
D) Trace acquisition documents to the fixed asset master file.

Question 10

When auditing disposals of property, plant, and equipment, the search for unrecorded disposals is essential.State the four audit procedures frequently used for verifying disposals.

Accepted Answer

The answer of When auditing disposals of property, plant, and...

Question 11

When the auditor is determining whether the client followed a consistent depreciation policy from period to period, and the client's depreciation calculations are correct, the balance-related audit objective of ________ is being determined for depreciation expense.

Accepted Answer

A) completeness 
B) existence 
C) classification 
D) accuracy

Question 12

One of the auditor's primary objectives when auditing manufacturing equipment is completeness.

Accepted Answer

A) True 
 B)False

Question 13

Ordinarily, if you are auditing a continuing client, it is unnecessary to test the accuracy objective or the classification objective for fixed assets acquired in prior years.

Accepted Answer

A) True 
 B)False

Question 14

The auditor needs to gain reasonable assurance that the equipment accounts in the fixed asset master file are not understated.Which of the following accounts would most likely be reviewed in making that determination?

Accepted Answer

A) Depreciation expense 
B) Repairs and maintenance expense 
C) Gains/losses on sales and retirements 
D) Cash

Question 15

Which of the following audit tests both have the effect of simultaneously verifying balance sheet and income statement accounts?

Accepted Answer

A) Analytical procedures and substantive tests of transactions 
B) Tests of controls and substantive tests of transactions 
C) Tests of details of balances and substantive tests of transactions 
D) Tests of controls and analytical procedures

Question 16

When performing the test of details of balances, the balance-related audit objective of classifications is closely related to the objective of:

Accepted Answer

A) accuracy. 
B) detail tie-in. 
C) existence. 
D) completeness.

Question 17

Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify:

Accepted Answer

A) all large transactions. 
B) all unusual transactions. 
C) a representative sample of typical additions. 
D) all three of the above.

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods if they are the continuing auditor because:

Accepted Answer

A) they are rarely material to the audit. 
B) they rarely contain misstatements. 
C) they are verified in previous audits. 
D) they don't affect the balance sheet.

Question 20

When auditing acquisitions of property, plant, and equipment, the auditor's review of lease and rental agreements most closely relate to the cutoff objective.

Accepted Answer

A) True 
 B)False

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

The most effective and efficient audit approach in the examination of the income statement would be which of the following?

You are auditing the acquisition and payment cycle and note the presence of excessive recurring losses on retired assets.You may conclude that:

The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are:

In the audit of accrued property taxes, the two most important balance-related audit objectives are completeness and accuracy.

The starting point for the verification of current-year acquisitions of property, plant, and equipment is normally a client-prepared schedule of all acquisitions recorded in the general ledger during the year.

State four of the seven specific balance-related audit objectives for property, plant, and equipment additions and, for each objective, describe one common test of details of balances.

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

The approach to auditing patents and copyrights is similar to that used for property, plant, and equipment accounts.

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

When auditing disposals of property, plant, and equipment, the search for unrecorded disposals is essential.State the four audit procedures frequently used for verifying disposals.

When the auditor is determining whether the client followed a consistent depreciation policy from period to period, and the client's depreciation calculations are correct, the balance-related audit objective of ________ is being determined for depreciation expense.

One of the auditor's primary objectives when auditing manufacturing equipment is completeness.

Ordinarily, if you are auditing a continuing client, it is unnecessary to test the accuracy objective or the classification objective for fixed assets acquired in prior years.

The auditor needs to gain reasonable assurance that the equipment accounts in the fixed asset master file are not understated.Which of the following accounts would most likely be reviewed in making that determination?

Which of the following audit tests both have the effect of simultaneously verifying balance sheet and income statement accounts?

When performing the test of details of balances, the balance-related audit objective of classifications is closely related to the objective of:

Normally it may be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it would be customary to verify:

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.

The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods if they are the continuing auditor because:

When auditing acquisitions of property, plant, and equipment, the auditor's review of lease and rental agreements most closely relate to the cutoff objective.