SOLVED

21) The test of details of balances procedure to “examine vendors’ invoices of closely related accounts such as repairs to uncover items that should be property, plant, and equipment” satisfies the audit objective of: A) completeness. B) detail tie-in. C) cutoff. D) existence. 22) The auditor’s 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) client’s schedule of recorded disposals. D) equipment subsidiary ledger. 23) Improperly classifying a fixed asset by recording the amount in the repairs and maintenance expense account will have an effect on which of the following financial statements until the asset would normally have been depreciated? A) The balance sheet B) The income statement C) The cash flow statement D) Both the income statement and the balance sheet 24) Because the failure to record disposals of property, plant, and equipment can significantly affect the financial statements, the search for unrecorded disposals is essential. Which of the following is not a procedure used to verify disposals? A) Make inquiries of management and production personnel about the possibility of the disposal of assets. B) Review whether newly acquired assets replace existing assets. C) Test the valuation of fixed assets recorded in prior periods. D) Review plant modifications and changes in product line, taxes, or insurance coverage. 25) When the auditor is determining appropriate depreciation calculations for the classifications in the client’s fixed asset master file she is testing the audit objective of: A) completeness. B) existence. C) classification. D) valuation and allocation. 26) A major consideration in verifying the ending balance in fixed assets is the possibility of existing legal encumbrances. Tests to identify possible legal encumbrances would satisfy the audit objective of: A) existence. B) presentation and disclosure. C) detail tie-in. D) classification. 27) 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. 28) The auditor needs to gain reasonable assurance that the equipment accounts in the fixed asset master file are not understated. Which of the following accounts would most likely be reviewed in making that determination? A) Depreciation expense B) Repairs and maintenance expense C) Gains/losses on sales and retirements D) Cash 29) Changing circumstances may require a change in the useful life of an asset. When this occurs, it involves a change in: A) accounting estimate rather than a change in accounting principle. B) accounting principle rather than a change in accounting estimate. C) both accounting principle and accounting estimate. D) neither accounting principle nor accounting estimate. 30) The auditor normally does not need to test the accuracy or classification of fixed assets recorded in prior periods if they are the continuing auditor because: A) they are rarely material to the audit. B) they rarely contain misstatements. C) they are verified in previous audits. D) they don’t affect the balance sheet.