Académique Documents
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Multiple-Choice Questions
1.
easy
a
2.
easy
d
3.
easy
c
4.
easy
c
5.
easy
6.
easy
d
a.
b.
c.
d.
7.
easy
d
Recorded in
accordance with
GAAP
Yes
Yes
No
Yes
Treated consistently
with those of the
preceding year
Yes
No
No
Yes
Necessary
Yes
No
No
No
Arens/Elder/Beasley
c.
d.
8.
easy
b
9.
easy
b
The primary accounting record for manufacturing equipment and other fixed
assets is the:
a. depreciation ledger.
b. fixed asset master file.
c. asset inventory.
d. equipment roster.
Which of the following statements about the audit of fixed assets is not
correct?
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 currentperiod acquisitions.
d.
Failure to record the acquisition of a fixed asset affects the income
statement until the assets is fully depreciated.
10.
easy
d
During the audit of prepaid insurance, the auditor should keep in mind that
the amount in insurance expense is based on:
a. the beginning balance in prepaid insurance.
b. the payment of premiums during the year.
c. the ending balance in prepaid insurance.
d. all three of the above.
11.
easy
d
12.
easy
b
13.
easy
c
14.
easy
c
Arens/Elder/Beasley
15.
easy
d
16.
medium
d
17.
medium
d
Which of the following tests are typically not necessary when auditing a
clients schedule of recorded disposals?
a. Footing the schedule.
b. Tracing schedule totals to the general ledger.
c. Tracing cost and accumulated depreciation of the disposals to the
property master file.
d. All of the above are necessary.
18.
medium
b
19.
medium
c
20.
medium
a
21.
medium
d
22.
medium
Arens/Elder/Beasley
a.
b.
c.
d.
23.
medium
a
24.
The auditors starting point for verifying disposals of property, plant, and
equipment is the:
a. equipment account in the general ledger.
b. file of shipping documents.
c. clients schedule of recorded disposals.
d. equipment subsidiary ledger.
medium
c
classification.
detail tie-in.
existence.
accuracy.
25.
medium
d
Failure to capitalize a fixed asset at the correct amount will affect ___________
until the asset is fully depreciated.
a. the balance sheet
b. the income statement
c. the cash flow statement
d. both the income statement and the balance sheet
26.
medium
c
27.
medium
28.
medium
b
Arens/Elder/Beasley
29.
medium
c
When auditing depreciation expense, the two major concerns related to the
accuracy audit objective are:
a. consistent application of depreciation method and useful lives.
b. consistent application of depreciation method and classification of
assets.
c. correctness of calculations and consistent application of depreciation
method.
d. cost of the fixed asset and useful lives.
30.
medium
d
31.
Depreciation expense is one of the few expense accounts that is not verified
as a part of:
a. tests of controls.
b. tests of transactions.
c. test of details of balances.
d. a and b, but not c.
medium
d
32.
medium
a
33.
medium
c
34.
medium
c
The auditor normally does not need to test the accuracy or classification of
fixed assets recorded in prior periods because:
a. they are rarely material to the audit.
b. they rarely contain misstatements.
c. they are verified in previous audits.
d. they dont affect the balance sheet.
35.
medium
d
Internal controls for prepaid insurance are typically categorized into all but
which of the following?
a. Controls over the acquisition and recording of insurance.
b. Controls over the insurance register.
c. Controls over the charge-off of insurance expense.
d. All of the above.
36.
A record of insurance policies in force and the due date of each policy is
contained in the:
a. voucher register.
b. insurance register.
medium
b
Arens/Elder/Beasley
c.
d.
37.
medium
a
38.
medium
b
39.
medium
c
40.
medium
b
Which of the following audit procedures would be least likely to lead the
auditor to find an unrecorded fixed asset disposal?
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.
41.
medium
a
42.
medium
d
43.
medium
Once the initial audit of a newly constructed industrial plant has been
performed, with respect to consistency, which of the following is of least
Arens/Elder/Beasley
44.
Controls over the acquisition and recording of insurance are a part of the
________.
a. inventory and warehousing cycle
b. capitalization cycle
c. treasury cycle
d. acquisition and payment cycle
medium
d
45.
challenging
a
46.
challenging
d
The
one
a.
b.
c.
d.
47.
challenging
d
48.
challenging
b
49.
challenging
b
50.
challenging
d
The tests of details of balances procedure for fixed assets which require the
auditor to examine vendors invoices of closely related accounts such as
repairs and maintenance to uncover items that should be fixed assets would
satisfy the audit objective of:
a. accuracy.
b. existence.
c. detail tie-in.
Arens/Elder/Beasley
51.
challenging
a
52.
challenging
b
53.
challenging
c
d. completeness.
The erroneous inclusion of transactions that should properly be recorded as
assets into accounts such as repairs expense, lease expense, or supplies is a
common client error. The auditor should evaluate the likelihood of these
types of misclassifications in conjunction with:
a. obtaining an understanding of internal control.
b. the test of controls.
c. the tests of transactions.
d. the tests of details of balances.
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.
a.
Both will be overstated indefinitely.
b.
The original cost will be overstated indefinitely, and the net book value
will be overstated until the asset is fully depreciated.
c.
The original cost will be overstated indefinitely, and the net book value
will be understated indefinitely.
d.
The original cost will be overstated indefinitely, and the net book value
will be understated until the asset is fully depreciated.
Income statement accounts resulting from allocations are typically verified
as a part of:
a. tests of controls.
b. substantive tests of transactions.
c. analytical procedures.
d. planning.
54.
challenging
a
55.
challenging
c
56.
challenging
b
Which of the following is the most important internal control procedure over
acquisitions of property, plant, and equipment?
d.
Requiring acquisitions to be made by user departments.
b.
Using a budget to forecast and control acquisitions and retirements.
c.
Analyzing monthly variances between authorized expenditures and
actual costs.
a.
Establishing a written company policy distinguishing between capital
and revenue expenditures.
57.
challenging
c
The auditor interviews the plant manager. The auditor is most likely to rely
upon this interview as primary support for an audit conclusion on:
a. capitalization vs. expensing policy.
b. allocation of fixed and variable cost.
Arens/Elder/Beasley
c.
d.
58.
challenging
d
The audit procedures used to verify accrued liabilities differ from those
employed for the verification of accounts payable because:
a.
accrued liability balances are less material than accounts payable
balances.
b.
accrued liabilities at year end will become accounts payable during the
following year.
c.
evidence supporting accrued liabilities is non-existent, whereas
evidence supporting accounts payable is readily available.
d.
accrued liabilities usually pertain to services of a continuing nature,
whereas accounts payable are the result of completed transactions.
Essay Questions
59.
easy
60.
easy
Why does the auditor not normally test the accuracy or classification of fixed
assets recorded in prior periods?
Answer:
They are presumed to have been verified in prior years audits.
61.
easy
Auditors should be aware that the life of certain fixed assets might be
reduced due to various circumstances. What circumstances might give rise
to a reduction in the useful life of a fixed asset?
Answer:
The useful life a of fixed asset may be reduced by:
a reduction in customer demand for products or services,
unexpected physical deterioration of the asset, or
a modification in operations.
62.
easy
Arens/Elder/Beasley
63.
easy
Describe two ways the verification of existence and tests for omissions of
the clients insurance policies in force can be performed.
Answer:
The verification of existence and tests for omissions of the insurance
policies can be tested in one of two ways: by examining insurance
invoices and policies in force or by obtaining a confirmation of insurance
information from the companys insurance agent.
64.
medium
65.
medium
66.
medium
Describe the audit procedures used to verify the accuracy and detail tie-in
objectives for prepaid insurance.
Answer:
The accuracy objective is tested by verifying the total amount of the
insurance premium, the length of the policy period, and the allocation of
the premium to unexpired insurance. The amount of the premium for a
given policy and its time period can be verified simultaneously by
examining the premium invoice or the confirmation from an insurance
agent. Once these two have been verified, the clients calculations of
unexpired insurance can be tested by recalculation. The schedule of
prepaid insurance can then be footed and the totals traced to the
Arens/Elder/Beasley
67.
medium
What are the auditors two main objectives in the audit of the ending
balance in accumulated depreciation?
Answer:
1. Accumulated depreciation as stated in the property master file must
agree with the general ledger. This objective can be satisfied by test
footing the accumulated depreciation or the property master file and
tracing the total to the general ledger.
2. Accumulated depreciation in the master file must be correct.
68.
medium
69.
challenging
70.
challenging
Arens/Elder/Beasley
71.
challenging
examine assets.
Existing acquisitions are recorded (completeness). Examine
vendors invoices of closely related accounts such as repairs and
maintenance to uncover items that should be property, plant, and
equipment.
Current-year acquisitions as listed are accurate (accuracy). Examine
vendors invoices.
Current-year acquisitions as listed are properly classified
(classification). Examine rent and lease expense for capitalizable
leases.
Current-year acquisitions are recorded in the proper period (cutoff).
Review transactions near the balance sheet date for proper period.
The client has rights to current-year acquisitions (rights and
obligations). Examine vendors invoices.
Discuss the key internal controls related to the disposal of property, plant,
and equipment.
Answer:
The most important internal control over the disposal of property, plant,
and equipment is the existence of a formal method to inform
management of the sale, trade-in, abandonment, or theft of recorded
machinery and equipment. Another important control to protect assets
from unauthorized disposal is a provision for authorization for the sale
or other disposal of property, plant, and equipment. Finally, there should
be adequate internal verification of recorded disposals to make sure
that assets are correctly removed from the accounting records.
72.
challenging
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.
Answer:
Review whether newly acquired assets replace existing assets.
Analyze gains and losses on the disposal of assets and
miscellaneous income for receipts from the disposal of assets.
Review plant modifications and changes in product lines, taxes, or
insurance coverage for indications of deletions of equipment.
Make inquiries of management and production personnel about the
possibility of the disposal of assets.
73.
challenging
Discuss the key internal controls over existing fixed assets that affect the
auditors extent of testing of fixed assets acquired in prior years.
Answer:
Important controls include the use of a master file for individual fixed
assets, adequate physical controls over assets that are easily movable,
assignment of identification numbers to each plant asset, and periodic
physical count of fixed assets and their reconciliation by accounting
personnel. A formal method of informing the accounting department of
all disposals of fixed assets is also an important control over the
Arens/Elder/Beasley
Discuss the key internal controls for prepaid insurance that affect the
auditors extent of testing of the prepaid insurance account.
Answer:
Important controls include proper authorization for new insurance
policies and payment of insurance premiums consistent with the clients
payment procedures. A record of insurance policies in force and the due
date of each policy is an essential control to make sure that the
company has adequate insurance at all times. The control should
include a provision for periodic review of the adequacy of the insurance
coverage by an independent qualified person. The detailed records of
the information in the insurance register should be verified by someone
independent of the person preparing them. A closely related control is
the use of monthly standard journal entries for insurance expense.
76.
easy
b
77.
easy
a
78.
easy
b
79.
easy
b
80.
easy
b
81.
easy
The auditor should keep in mind that the amount in insurance expense is a
residual amount.
Arens/Elder/Beasley
a.
b.
82.
easy
a
The realizable value audit objective is not applicable when auditing prepaid
insurance or insurance expense.
a. True
b. False
83.
medium
a
Arens/Elder/Beasley
True
False
84.
medium
b
85.
medium
a
86.
medium
a
87.
medium
a
88.
medium
a
Tests of the cutoff objective for prepaid insurance are rarely performed by
auditors.
a. True
b. False
89.
medium
a
90.
medium
b
91.
medium
a
92.
medium
a
93.
medium
a
The auditors tests for proper cutoff of current year acquisitions of property,
plant, and equipment are usually done as part of accounts payable cutoff
tests.
a. True
b. False
Arens/Elder/Beasley
94.
medium
b
Arens/Elder/Beasley
95.
medium
b
The audit procedure foot the schedule of fixed assets acquisitions and trace
the total to the general ledger relates most closely to the accuracy
objective for fixed assets acquisitions.
a. True
b. False
96.
medium
b
97.
medium
a
98.
medium
a
99.
challenging
b
The approach to auditing patents and copyrights is more similar to that used
for current assets than the approach used for property, plant, and
equipment accounts.
a. True
b. False
100.
challenging
b
101.
challenging
a
102.
challenging
a
In the audit of accrued property taxes, the two most important balancerelated audit objectives are completeness and accuracy.
a. True
b. False
103.
challenging
a
104.
challenging
b
Arens/Elder/Beasley
b.
Arens/Elder/Beasley
False