Test Bank: Verification of Assets and Liabilities

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BankChapter 13 - Property, Plant, and Equipment: Depreciation and Depletion

Chapter 13 Property, Plant, and Equipment: Depreciation and Depletion True / False Questions

1. The auditors' approach to the audit of property, plant, and equipment largely results from the fact that relatively few transactions occur. True False

2. A major control procedure related to plant and equipment is a budget for depreciation. True False

3. Evidence of continued ownership of property is obtained by vouching payments to a mortgage trustee. True False

4. The auditors typically observe all major items of property, plant, and equipment every year. True False

5. Material purchases of assets from an affiliated company should be disclosed in the financial statements. True False

6. Idle equipment will generally need to be reclassified as a current asset. True False

7. The primary purpose of internal control over plant and equipment is to safeguard the assets from theft. True False

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Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion

8. A typical procedure in the audit of property is examination of public records to verify the ownership of the property. True False

9. Even when internal control is weak, a significant portion of the audit work on property, plant, and equipment may be performed at an interim date. True False

10. In the audit of depletion the auditors must often rely on the work of specialists. True False

Multiple Choice Questions

11. 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's deprecation expense was erroneously understated. D. Overhead allocations were revised at year-end.

12. 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 expense. C. Trace equipment items observed during the plant tour to the equipment subsidiary ledger. D. Scan the general journal for unusual equipment retirements.

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Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion

13. 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 production equipment. D. Deferral of certain purchases of office supplies.

14. 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 orders are used for equipment and periodically accounted for. C. Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. D. Procedures exist to restrict access to equipment.

15. 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. Analytical procedures for current year property and equipment transactions. C. Tests of controls and limited tests of current year property and equipment transactions. D. Analytical procedures for property and equipment balances at the end of the year.

16. 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's working papers and audit of significant changes...
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