Auditing Chapter 12 Homework

Question 1 of 30

1

Which one of the following factors is not an inherent risk associated with long-lived assets?

Select one of the following:

a. Incomplete recording of disposals.
b. Impairment of assets.
c. Obsolescence of assets.
d. Lack of physical controls over the long-lived assets.

Explanation

Question 2 of 30

1

Which one of the following approaches does not represent how the auditor will become aware of risks associated with long-lived assets?

Select one of the following:

a. Reviewing the minutes of board of directors’ meetings.
b. All represent how the auditor will become aware of risks associated with long-lived assets and related expenses.
c. Obtaining knowledge of the client business.
d. Reviewing the business plan related to major acquisitions.

Explanation

Question 3 of 30

1

The tour of the manufacturing plant may best assist the auditor in determining which of the following?

Select one of the following:

a. Management's strategy for assessing impairment.
b. Estimates of depreciation expense.
c. Whether all purchases are authorized.
d. Whether any machinery is inoperative in the production cycle.

Explanation

Question 4 of 30

1

Which one of the following is not a management assertion relevant to long-lived assets?

Select one of the following:

a. Reporting.
b. Existence.
c. Completeness.
d. Valuation.

Explanation

Question 5 of 30

1

Which of the following is not a circumstance indicating potential impairment of intangible assets?

Select one of the following:

a. Losses or projections indicating continuing losses associated with an asset used to generate revenue.
b. A change in circumstances, such as the legal environment or business climate, that could affect the asset’s value.
c. An accumulation of costs that are significantly in excess of the amount originally expected to be needed to acquire or construct the asset.
d. The asset generates just as much cash flow as in the past.

Explanation

Question 6 of 30

1

Which of the following expense accounts is associated with natural resources?

Select one of the following:

a. Depreciation expense.
b. Amortization expense.
c. Capitalization expense.
d. Depletion expense.

Explanation

Question 7 of 30

1

Which of the following controls related to management’s asset impairment judgments does the auditor need to understand?

Select one of the following:

a. A systematic process to identify assets that are not currently in use.
b. Projections of future cash flows that is based on management’s strategic plans and economic conditions.
c. Systematic development of current market values of similar assets prepared by the client.
d. All of the above.

Explanation

Question 8 of 30

1

For intangible assets, controls should be designed to do which of the following?

Select one of the following:

a. Identify and account for intangible asset impairments.
b. Develop amortization schedules that reflect the remaining useful life of patents or copyrights associated with the asset.
c. Provide reasonable assurance that decisions are appropriately made as to when to capitalize or expense research and development expenditures.
d. All of the above.

Explanation

Question 9 of 30

1

Which of the following information should be included in management’s documentation regarding intangible assets?

Select one of the following:

a. Manner of acquisition.
b. Basis for the capitalized amount
c. Expected period of benefit.
d. All the above should be included.

Explanation

Question 10 of 30

1

When performing preliminary analytical procedures related to long-lived assets, which of the following should the auditor compare the unaudited financial statements with?

Select one of the following:

a. Past results.
b. Industry trends.
c. Future company projections.
d. Both A and B.

Explanation

Question 11 of 30

1

An auditor’s review of the repair expense to identify any capital expenditures is a test related to which management assertion?

Select one of the following:

a. Valuation.
b. Rights and obligations.
c. Existence.
d. Completion.

Explanation

Question 12 of 30

1

Audit procedures should be proportional to which of the following?

Select one of the following:

a. The assessed risks.
b. Size of the client.
c. Size of the firm.
d. The assessed misstatements.

Explanation

Question 13 of 30

1

Which is the primary assertion tested in conjunction with obtaining evidence regarding impairment?

Select one of the following:

a. Rights.
b. Cutoff.
c. Existence.
d. Valuation.

Explanation

Question 14 of 30

1

If the auditor is testing the reasonableness of depreciation expense for the year, which assertion is being tested?

Select one of the following:

a. Valuation.
b. Existence.
c. Completeness.
d. Rights and obligations.

Explanation

Question 15 of 30

1

In a tour of a client's manufacturing facility, the auditor is most likely attempting to satisfy which of the following management assertions related to long-lived assets?

Select one of the following:

a. Presentation and disclosure.
b. Existence.
c. Rights.
d. Completeness.

Explanation

Question 16 of 30

1

The auditor selects a sample of asset disposals and examines the sales documentation evidencing disposal of the equipment and recomputes gain or loss on the disposal. This audit procedure primarily tests which of the following assertions for the equipment account?

Select one of the following:

a. Presentation and disclosure.
b. Valuation.
c. Rights.
d. Existence.

Explanation

Question 17 of 30

1

Which one of the following does not constitute a probable relationship between accounts?

Select one of the following:

a. Oil reserves and depreciation.
b. Equipment and depreciation.
c. Assets under capital leases and amortization.
d. Patent and amortization.

Explanation

Question 18 of 30

1

A client has implemented a policy requiring the establishment and enforcement of property management training for all personnel involved in the use, stewardship, and management of equipment. Which of the following is not a test that could be used in testing the control?

Select one of the following:

a. Inquiry.
b. Inspection of documentation.
c. Review of financial statements.
d. Observation.

Explanation

Question 19 of 30

1

The auditor performs substantive procedures related to property, plant, and equipment to determine if the assets have been pledged as collateral or title has transferred. What is the primary assertion the auditor is testing?

Select one of the following:

a. Completeness.
b. Valuation.
c. Rights.
d. Existence.

Explanation

Question 20 of 30

1

Which of the following assertions are usually the two most relevant assertions related to long-lived assets?

Select one of the following:

a. Valuation and completeness.
b. Existence and presentation.
c. Completeness and existence.
d. Existence and valuation.

Explanation

Question 21 of 30

1

Which of the following procedures is not a procedure used by an auditor in searching for unrecorded disposals of long-lived assets?

Select one of the following:

a. Send confirmations to insurance agents.
b. Examine property tax records.
c. Make client inquiries.
d. Examine scrap sales accounts.

Explanation

Question 22 of 30

1

As natural resources are used up, the client has to recognize which of the following types of expense?

Select one of the following:

a. Amortization expense.
b. Depletion expense.
c. Reclamation expense.
d. Depreciation expense.

Explanation

Question 23 of 30

1

Which of the following is not a typical internal control over long-lived assets?

Select one of the following:

a. Periodically reassess the appropriateness of depletion categories.
b. Periodically review management strategy and systematically assess the impairment of assets.
c. Identify obsolete or scrapped equipment and write it down to scrap value.
d. Reconcile physical asset inventory with the property ledger.

Explanation

Question 24 of 30

1

Which of the following procedures is not a fraud-related audit procedure used to respond to identified fraud risk factors?

Select one of the following:

a. Confirm the terms of significant additions of property or intangibles with other parties involved in the transaction.
b. Physically inspect tangible assets, including major additions, and agree serial numbers with invoices or other supporting documents.
c. Use the work of a specialist for asset valuations, including impairments.
d. All of the above are fraud-related audit procedures.

Explanation

Question 25 of 30

1

Which of the following is not a significant challenge related to valuation issues for audits of merger and acquisition transactions?

Select one of the following:

a. Valuing the liabilities upon acquisition.
b. Measuring the qualifications of personnel from the acquired company.
c. Valuing the assets upon acquisition.
d. Measuring restructuring charges.

Explanation

Question 26 of 30

1

Which of the following is false regarding the valuation of goodwill?

Select one of the following:

a. U.S. accounting standards require that goodwill be specifically identified with an operating segment or a reporting unit.
b. Goodwill is tested for impairment quarterly.
c. Goodwill is the excess of the purchase price over the fair market value of the acquired company’s tangible assets, identifiable intangible assets, and liabilities.
d. By definition, acquired parts of the business (or goodwill) must be sufficiently identifiable so that they can be managed as a unit or may be separately identified and sold as a unit.

Explanation

Question 27 of 30

1

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Select one of the following:

a. Performing an analysis of volume of trading activity.
b. Determining appropriate model and sensitivity of model.
c. Performing an analysis of trades on similar assets.
d. Reviewing contracts to determine if loss is other than temporary.

Explanation

Question 28 of 30

1

In the audit approach for assessing fair value, which should the auditor determine for Level 2 assets?

Select one of the following:

a. Contingent liabilities.
b. Sensitivity of model used for marking to model.
c. The correspondence of the client’s assets to similar assets in an active market.
d. The performance of tests of controls.

Explanation

Question 29 of 30

1

The FASB has set a hierarchy of inputs to consider in assessing fair value. Which of the following relates to Level 3?

Select one of the following:

a. Unobservable inputs to be used in situations where markets do not exist.
b. Quoted prices for identical items in active, liquid, and visible markets.
c. Observable information for similar items in active or inactive markets.
d. Unobservable inputs to be used in illiquid situations.

Explanation

Question 30 of 30

1

The FASB has set a hierarchy of inputs to consider in assessing fair value. Which of the following valuations are generally viewed as the most subjective?

Select one of the following:

a. Level 0.
b. Level 2.
c. Level 3.
d. Level 1.

	Created by Kayla Harbaugh about 4 years ago