Which of the following controls will most likely justify a reduced assessed level of control risk for the existence assertion for equipment?
1. Internal auditors periodically select equipment items in the fixed assets master file and locate the related equipment on company premises.
2.Department heads are asked to provide information to the accounting department each quarter about any equipment no longer in use or somewhat damaged.
3. All contracts of equipment purchases are reviewed by both the controller and attorney to verify that legal title transfers to the client and that none represent operating leases.
1
Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control that provides for
1.
segregation of duties of employees in the accounts payable department.
2.authorization by the board of directors of significant equipment acquisitions.
3.investigations of variances within a formal budgeting system.
4.independent verification of invoices for disbursements recorded as equipment acquisitions.
3
Which of the following questions is an auditor least likely to include on an internal control questionnaire concerning the initiation and execution of equipment transactions?
1.
Are requests for major repairs approved at a higher level than the department initiating the request?
2. Are prenumbered purchase orders used for equipment and periodically accounted for?
3. Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids?
4. Are procedures in place to monitor and properly restrict access to equipment?
4 - large enough to prevent theft
In testing for unrecorded disposals of equipment, an auditor most likely will
1. select items of equipment from the accounting records and then locate them during the plant tour.
2. compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment.
3. inspect items of equipment observed during the plant tour and then trace them to the equipment master file.
4. scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.
1
Which of the following analytical procedure results might suggest that certain repairs and maintenance expenses have been inappropriately capitalized?
1. The ratio of additions to equipment divided by the beginning balance in the equipment account is significantly lower than the same ratio from the prior three years.
2.The balance in the repairs and maintenance expense account is noticeably lower than amounts recorded in the past several years.
3.The balance in the gross equipment account has decreased this year compared to the prior year.
4. The ratio of depreciation expense divided by gross equipment is higher in the current year compared to prior years.
2
In connection with the audit of the prepaid insurance account, which of the following procedures is usually not performed by the auditor?
1. Recompute the portion of the premium that expired during the year.
2. Prepare excerpts of the insurance policies for audit documentation.
3. Confirm premium rates with an independent insurance broker.
4. Examine support for premium payments.
3
The auditor may note that annual depreciation expense is too low for a class of
assets by noting
1. insured values greatly in excess of carrying amounts.
2. large numbers of fully depreciated assets are still in use.
3. continuous trade-ins of relatively new assets.
4. excessive recurring losses on assets retired.
4
An auditor's principal objective in analyzing repairs and maintenance expense accounts is to
1. determine that all obsolete property, plant, and equipment
assets were written off before the year-end.
2. verify that all recorded property, plant, and equipment assets actually exist.
3. discover expenditures that were expensed but should have been capitalized.
4. identify property, plant, and equipment assets that cannot be repaired and should be written off.
3
Which of the following comparisons will be most useful to an auditor in auditing an
entity's income and expense accounts?
1. Prior year accounts payable to current year accounts payable
2. Prior year payroll expense to budgeted current year payroll expense
3. Current year revenue to budgeted current year revenue
4. Current year warranty expense to current year contingent liabilities
3
An audit firm performs a preliminary review of the client's internal controls over its
property, plant, and equipment cycle. Which of the following would represent a weakness in internal control?
1. Each fixed asset has an identification plate that is listed on a control account.
2. Assets that are retired are documented on a sequential work order, which includes an authorization signature.
3. A subsidiary ledger is used by the client to keep detailed transaction information for each fixed asset.
4. The purchasing department generates a special requisition form upon oral or written approval by senior management.
4 - purchasing department shouldn't create PO
In searching for unrecorded retirements, an auditor selects older fixed assets from the subsidiary ledger and then tries to locate those assets. This procedure primarily relates to management's assertion of
1. existence.
2. completeness.
3. rights and obligations.
4. understandability and classification.
1
When auditing a client's property, plant, and equipment transactions, which of the following tests of details can be used to support the existence and occurrence assertion?
1. Examine a sample of material charges to repairs and maintenance expense to determine if any items should have been capitalized.
2. Vouch a sample of purchases to the vendor invoice and receiving report.
3. Recalculate any revaluation losses or surplus transactions made to property, plant, and equipment during the year.
4. Review fixed asset purchases and dispositions right before and after year-end to determine if recorded in the correct period.
2