Question 1

Depreciation expense is normally verified as a part of tests of details of balances rather than as part of tests of controls or substantive tests of transactions.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Depreciation expense results from the allocation of accounting data rather than discrete transactions.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  The primary accounting record for manufacturing equipment and other property, plant and equipment is generally a fixed asset master file. 
B)  Manufacturing equipment and current assets are normally audited in the same fashion regardless of the activity within a particular account. 
C)  The emphasis on auditing fixed assets is on verification of current-period acquisitions. 
D)  Failure to record the acquisition of a fixed asset affects the income statement until the assets are fully depreciated.

Question 5

Which balance-related audit objective is not relevant to an audit of prepaid expenses?

Accepted Answer

A)  Rights 
B)  Accuracy 
C)  Detail tie-in 
D)  Realizable value

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

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:

Accepted Answer

A)  existence. 
B)  presentation and disclosure. 
C)  detail tie-in. 
D)  classification.

Question 9

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?

Accepted Answer

A)  Examine vendor invoices and receiving reports. 
B)  Review transactions near the balance sheet date. 
C)  Recalculate vendor invoices. 
D)  Examine vendor invoices for correct accounting treatment.

Question 10

Confirmations are commonly used to verify additions of property,plant,and equipment.

Accepted Answer

A) True 
 B)False

Question 11

One of the reasons that auditors verify equipment differently from current assets is the amount of any given equipment acquisition is often material.

Accepted Answer

A) True 
 B)False

Question 12

Completeness and existence are the auditor's primary objectives in auditing manufacturing equipment.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

The test of details of balances procedure to "examine vendors' invoices of closely related accounts such as repairs to uncover items that should be property,plant,and equipment" satisfies the audit objective of:

Accepted Answer

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

Question 16

Discuss the key internal controls related to the disposal of property,plant,and equipment.

Accepted Answer

The answer of Discuss the key internal controls related to...

Question 17

Describe the audit procedures used to verify the accuracy and detail tie-in objectives for prepaid insurance.

Accepted Answer

The answer of Describe the audit procedures used to verify...

Question 18

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 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

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

Accepted Answer

A)  Examination of insurance policies 
B)  Review of repairs and maintenance expense 
C)  Review of property tax files 
D)  Scanning of invoices for fixed asset additions

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

Depreciation expense is normally verified as a part of tests of details of balances rather than as part of tests of controls or substantive tests of transactions.

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

Depreciation expense results from the allocation of accounting data rather than discrete transactions.

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

Which balance-related audit objective is not relevant to an audit of prepaid expenses?

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

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

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:

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?

Confirmations are commonly used to verify additions of property,plant,and equipment.

One of the reasons that auditors verify equipment differently from current assets is the amount of any given equipment acquisition is often material.

Completeness and existence are the auditor's primary objectives in auditing manufacturing equipment.

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

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

The test of details of balances procedure to "examine vendors' invoices of closely related accounts such as repairs to uncover items that should be property,plant,and equipment" satisfies the audit objective of:

Discuss the key internal controls related to the disposal of property,plant,and equipment.

Describe the audit procedures used to verify the accuracy and detail tie-in objectives for prepaid insurance.

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

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:

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