Auditing Chapter 12 Homework

a. Incomplete recording of disposals.

b. Impairment of assets.

c. Obsolescence of assets.

d. Lack of physical controls over the long-lived assets.

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.

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.

a. Reporting.

b. Existence.

c. Completeness.

d. Valuation.

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.

a. Depreciation expense.

b. Amortization expense.

c. Capitalization expense.

d. Depletion expense.

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.

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.

a. Manner of acquisition.

b. Basis for the capitalized amount

c. Expected period of benefit.

d. All the above should be included.

a. Past results.

b. Industry trends.

c. Future company projections.

d. Both A and B.

a. Valuation.

b. Rights and obligations.

c. Existence.

d. Completion.

a. The assessed risks.

b. Size of the client.

c. Size of the firm.

d. The assessed misstatements.

a. Rights.

b. Cutoff.

c. Existence.

d. Valuation.

a. Valuation.

b. Existence.

c. Completeness.

d. Rights and obligations.

a. Presentation and disclosure.

b. Existence.

c. Rights.

d. Completeness.

a. Presentation and disclosure.

b. Valuation.

c. Rights.

d. Existence.

a. Oil reserves and depreciation.

b. Equipment and depreciation.

c. Assets under capital leases and amortization.

d. Patent and amortization.

a. Inquiry.

b. Inspection of documentation.

c. Review of financial statements.

d. Observation.

a. Completeness.

b. Valuation.

c. Rights.

d. Existence.

a. Valuation and completeness.

b. Existence and presentation.

c. Completeness and existence.

d. Existence and valuation.

a. Send confirmations to insurance agents.

b. Examine property tax records.

c. Make client inquiries.

d. Examine scrap sales accounts.

a. Amortization expense.

b. Depletion expense.

c. Reclamation expense.

d. Depreciation expense.

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.

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.

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.

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.

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.

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.

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.

a. Level 0.

b. Level 2.

c. Level 3.

d. Level 1.