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Substantive Audit of Ppe

1. When auditing property, plant and equipment, the best way to obtain evidence of legal ownership of real property is to examine documents registered with the register of deeds, such as closing documents and deeds. 2. When few property and equipment transactions occur during the year, the continuing auditor typically obtains an understanding of internal controls and performs analytical procedures to verify current year additions. 3. To obtain evidence about fixed asset additions, an auditor is most likely to inspect documents, physically examine assets, and confirm ownership through inquiries with client personnel.

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221 views3 pages

Substantive Audit of Ppe

1. When auditing property, plant and equipment, the best way to obtain evidence of legal ownership of real property is to examine documents registered with the register of deeds, such as closing documents and deeds. 2. When few property and equipment transactions occur during the year, the continuing auditor typically obtains an understanding of internal controls and performs analytical procedures to verify current year additions. 3. To obtain evidence about fixed asset additions, an auditor is most likely to inspect documents, physically examine assets, and confirm ownership through inquiries with client personnel.

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Steve Suppie
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SUBSTANTIVE AUDIT OF PROPERTY, PLANT AND EQUIPMENT

1. Property, plant and equipment is typically judged to be one of the


accounts least susceptible to fraud because
a. The amounts recorded on the balance sheet for most companies are
immaterial.
b. The inherent risk is usually low.
c. The depreciated values are always smaller than cost.
d. Internal control is inherently effective regarding this account.

2. Which is the best audit procedure to obtain evidence to support the legal
ownership of real property?
a. Examination of corporate minutes and board resolutions with regard to
approvals to acquire real property.
b. Examination of closing documents, deeds and ownership documents
registered and on file at the register of deeds.
c. Discussion with corporate legal counsel concerning the acquisition of a
specific piece of property.
d. Confirmation with the title company that handled the escrow account and
disbursement of proceeds for the closing of the property.

3. When few property and equipment transactions occur during the year the
continuing auditor usually obtains and understanding of internal control and
performs
a. Tests of controls
b. Analytical procedures to verify current year additions to property and
equipment
c. A thorough examination of the balances at the beginning of the year.
d. Extensive tests of current year property and equipment transactions.

4. Which of the following combinations of procedures is an auditor most


likely to perform to obtain evidence about fixed asset addition?
a. Inspecting documents and physically examining assets.
b. Recomputing calculations and obtaining written management
representations.
c. Observing operating activities and comparing balances to prior period
balances.
d. Confirming ownership and corroborating transactions through inquiries of
client personnel.

5. If an auditor tours a production facility, which of the misstatements or


questionable practices is most likely to be detected by the audit procedures
specified?
a. Depreciation expense on fully depreciated machinery has been
recognized.
b. Overhead has been overapplied.
c. Necessary facility maintenance has not been performed.
d. Insurance coverage on the facility has lapsed.

6. In testing for unrecorded retirements of equipment, an auditor is most


likely to
a. Select items of equipment from the accounting records and then locate
them during the plant tour.
b. Compare depreciation journal entries with similar prior-year entries in
search of fully depreciated equipment.
c. Inspect items of equipment observed during the plant tour and then trace
them to the equipment subsidiary ledger.
d. Scan the general journal for unusual equipment additions and excessive
debits to repairs and maintenance expense.

7. Determining that proper amounts of depreciation are expensed provides


assurance about management’s assertions of valuation and
a. Presentation and disclosure.
b. Completeness.
c. Rights and obligations.
d. Existence or occurrence.

8. The auditor may conclude that depreciation charges are insufficient by


noting
a. Insured values greatly in excess of book values.
b. Large numbers of fully depreciated assets.
c. Continuous trade-in of relatively new assets.
d. Excessive recurring losses on assets retired.

9. An auditor analyzes repairs and maintenance accounts primarily to obtain


evidence in support of the audit assertion that all
a. Noncapitalizable expenditures for repairs and maintenance have been
recorded in the proper period.
b. Expenditures for property and equipment have been recorded in the
proper period.
c. Noncapitalizable expenditures for repairs and maintenance have been
properly charged to expense.
d. Expenditures for property and equipment have not been charged expense.

10. In violation of company policy, Coatsen Company erroneously capitalized


the cost of painting its warehouse. An auditor would most likely detect this
when
a. Discussing capitalization policies with Coatsen's controller.
b. Examining maintenance expense accounts.
c. Observing that the warehouse had been painted.
d. Examining construction work orders that support items capitalized during
the year.

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