Chapter 13 Questions

Which of the following is a customary audit procedure for the verification of the legal ownership of real property?
A. Examination of correspondence with the corporate counsel concerning acquisition matters.
B. Examination of ownership documents registere

D. Examination of deeds and title guaranty policies on hand.

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for:
A. Investigation of variances within a formal budgeting system.
B. Review and approval of the monthly deprec

A. Investigation of variances within a formal budgeting system

An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely?
A. The estimated remaining useful lives of equipment were increased.
B. Plant assets were retired during the year.
C. The prior year

B. Plant assets were retired during the year.

In testing for unrecorded retirements of equipment, an auditor might.
A. Select items of equipment from the accounting records and then attempt to locate them during the plant tour.
B. Compare depreciation expense with the prior year's depreciation expens

A. Select items of equipment from the accounting records and then attempt to locate them during the plant tour.

A plant manager would be most likely to provide information on which of the following?
A. Adequacy of the provision for uncollectible accounts.
B. Appropriateness of physical inventory valuation techniques.
C. Existence of obsolete inventory.
D. Deferral

C. Existence of obsolete inventory.

Which of the following would be least likely to address control over the initiation and execution of equipment transactions?
A. Requests for major repairs are approved by a higher level than the department initiating the request.
B. Prenumbered purchase o

D. Procedures exist to restrict access to equipment.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs:
A. Tests of controls and extensive tests of property and equipment balances at the end of the year.
B

C. Tests of controls and limited tests of current year property and equipment transactions.

Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant and equipment for a continuing nonpublic client?
A. Direct audit of the ending balance.
B. Agreement of the beginning balance to prior year'

B. Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts.

Which of the following is not a control that should be established for purchases of equipment?
A. Establishing a budget for capital acquisitions.
B. Requiring that the department in need of the equipment order the equipment.
C. Requiring that the receivin

B. Requiring that the department in need of the equipment order the equipment.

Which of the following is not one of the auditors' objectives in auditing depreciation?
A. Establishing the reasonableness of the client's replacement policy.
B. Establishing that the methods used are appropriate.
C. Establishing that the methods are cons

A. Establishing the reasonableness of the client's replacement policy.

Which of the following is the best evidence of continuous ownership of property?
A. Examination of the deed.
B. Examination of rent receipts from lessees of the property.
C. Examination of the title policy.
D. Examination of canceled check in payment for

B. Examination of rent receipts from lessees of the property.

Which of the following best describes the auditors' typical observation of plant and equipment?
A. The auditors observe a physical inventory of plant and equipment, annually.
B. The auditors observe all additions to plant and equipment made during the yea

D. The auditors observe major additions to plant and equipment made during the year.

Which of the following is used to obtain evidence that the client's equipment accounts are not understated?
A. Analyzing repairs and maintenance expense accounts.
B. Vouching purchases of plant and equipment.
C. Recomputing depreciation expense.
D. Analyz

A. Analyzing repairs and maintenance expense accounts.

Which of the following is not a test primarily used to test property, plant and equipment accounts for overstatement?
A. Investigation of reductions in insurance coverage.
B. Review of property tax bills.
C. Examination of retirement work orders prepared

D. Vouching retirements of plant and equipment.

A continuing audit client's PP&E and AR accounts have approximately the same year-end balance. In this circumstance, when compared to property, plant and equipment one would normally expect the audit of accounts receivable to require:
A. More audit time.

A. More audit time.

When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the following accounts would be expected to decrease the most?
A. Accounts receivable.
B. Cash.
C. Marketable securities.
D. P

D. Property, plant and equipment.

When performing an audit of the property, plant and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?
A. Repairs have been capitalized to repair equ

A. Repairs have been capitalized to repair equipment that had broken down.