Questions

1. When there are few property and equipment transactions during the year, the continuing
auditor usually makes a
a. Complete review of the related internal controls and assesses control risk relative to
them
b. Preliminary review of the related internal controls and performs extensive tests of
current year property and equipment transactions
c. Complete review of the related internal controls and performs analytical review tests
to verify current year additions to property and equipment
d. Preliminary review of the related internal controls and performs a thorough
examination of the balances at the beginning of the year
2. An auditor is verifying a companys ownership of equipment. What is the best evidence
of ownership?
a.
b.
c.
d.

An interview with the equipment custodian verifying company ownership

The presence of the equipment on the companys statement of financial position
The current years depreciation expense journal entry
A cancelled check written to acquire the equipment

3. What management assertion is violated if the clients statement of financial position

includes equipment that was leased under an operating lease?
a.
b.
c.
d.

Existence or occurrence
Rights and obligations
Completeness
Classification

4. When auditing prepaid insurance, an auditor discovers that the original insurance policy
on the plant equipment is not available for inspection. The policys absence most likely
indicates the possibility of a(an)
a.
b.
c.
d.

Lien on the plant equipment

Insurance premium due but not recorded
Deficiency in the coinsurance provision
Understatement of insurance expense

5. Which of the following techniques would best result in sufficient evidence with regard to
an audit of the quantity of fixed assets on hand in a particular department?
a.
b.
c.
d.

Physical observation
Analytical review of purchase requests and subsequent invoices
Interviews with department management
Examination of the account balances contained in general and subsidiary legders

6. In testing plant and equipment balances, an auditor examines news additions listed on an
analysis of plane and equipment. This procedure most likely obtains evidence concerning
managements assertion of
a.
b.
c.
d.

Completeness
Presentation and disclosure
Existence or occurrence
Valuation and allocation

7. Which of the following combinations of procedures would an auditor most likely perform
to obtain evidence about fixed asset additions?
a. Recomputing calculations and obtaining written management representations
b. Observing operating activities and comparing balances to prior period balances
c. Confirming ownership and corroborating transactions through inquiries of client
personnel
d. Inspecting documents and physically examining assets
8. The most significant audit step in substantiating additions to the office furniture account
balance is
a.
b.
c.
d.

Comparison to prior years acquisition

Examination of vendors invoices and receiving reports for current years acquisitions
Review of transactions near the end of the reporting period for proper period cutoff
Calculation of ratio of depreciation expense to gross office equipment cost

9. An auditor verifying the existence of newly acquired fixed assets recorded in the
accounting records. Which of the following is the best evidence to help achieve this
objective?
a.
b.
c.
d.

Oral evidence obtained by discussions with operating management

Documentary support obtained by vouching entries to subsidiary records and invoiced
Documentary support obtained by reviewing titles and tax returns
Physical examination of a sample of newly recorded fixed assets

10. In auditing plant assets and accumulated depreciation for proper valuation, the auditor
should do all except the following:
a.
b.
c.
d.

Physically inspect major plant assets additions

Recalculate depreciation expense on a test basis
Vouch repairs and maintenance expense on a test basis
Vouch major additions by reference to underlying documentation

11. To verify the proper value of costs charged to real property records for improvements to
the property, the best source of evidence would be:

a.
b.
c.
d.

A letter signed by the real property manager asserting the propriety of costs incurred.
Original invoices supporting entries into the accounting records.
A comparison of billed amounts to contract estimates.
Inspection by the auditor of real property improvements.

12. To test the accuracy of the current years depreciation charges, an auditor should rely
most heavily on:
a. Comparison of depreciation schedule detail with schedules supporting the income tax
return.
b. Re-computation of depreciation for a sample of plant assets.
c. Tracing of totals from the depreciation schedule to properly approved journal entries
and ledger postings.
d. Vouching of the current years fixed asset acquisitions.
13. The audit procedure of analyzing the repairs and maintenance accounts is primarily
designed to provide evidence in support of the audit proposition that all:
a.
b.
c.
d.

Capital expenditures have been properly authorized.

Expenditures for fixed assets have been recorded in the proper period.
Expenditures for fixed assets have been capitalized.
Non-capitalizable expenditures have been properly expensed.

14. An auditor would most efficiently test for the misclassification of capital acquisitions as
expenses by:
a.
b.
c.
d.

Taking a physical tour of plant facilities before starting an audit.

Scanning repair and maintenance records and investigating large dollar-value entries.
Reviewing company capital acquisition policies with purchasing personnel.
Tracing capital additions back to source documents.

15. In performing a search for unrecorded retirements of fixed assets, an auditor most likely
would:
a. Tour the clients facilities, and then inspect the property ledger and the insurance and
tax records.
b. Analyze the repair and maintenance account, and the tour the clients facilities.
c. Inspect the property ledger and the insurance and tax records, and then tour the
clients facilities.
d. Tour the clients facilities, and then analyze the repair and maintenance account.
16. An auditor might use several different procedures to test for the proper accounting for
retirement of plant and equipment. Which of the following tests would be the most
effective in providing evidence about the retirement of fixed assets:

a. Determination of whether fully depreciated assets still in use are included in the asset
accounts.
b. Examination of the cash account for unusual account.
c. Analysis of debits to the accumulated depreciation account.
d. Analysis of debits to the fixed asset account.
17. Which of the following procedures would least likely lead the auditor o detect unrecorded
fixed asset disposals:
a.
b.
c.
d.

Examine insurance policies.

Review property tax files.
Scan invoices for fixed asset additions.
Review repairs and maintenance expense.

18. A weakness in internal accounting control over recording retirements of equipment may
cause the auditor to:
a. Trace additions to the other assets account to search for equipment that is still on
hand but no longer being used.
b. Inspect certain items of equipment in the plant and trace those items into the
accounting records.
c. Select certain items of equipment from the accounting records and locate them in the
plant.
d. Review the subsidiary ledger to ascertain whether depreciation was taken on each
item of equipment during the year.
19. The controller of PRTC, Inc., wants to use ratio analysis to identify the possible existence
of idle equipment or the possibility that equipment has been disposed of without having
been written off. Which of the following ratios would best accomplish this objective?
a.
b.
c.
d.

Depreciation expense divided by book value of manufacturing equipment.

Accumulated depreciation divided by book value of manufacturing equipment.
Repairs and maintenance cost divided by direct labor costs.
Gross manufacturing equipment cost divided by units produced.

20. Assets may suffer an impairment in value for a variety of reasons, but not likely as a
result of:
a.
b.
c.
d.

A corporate restructuring.
Slumping demand for uncompetitive products.
Significant increases in market share.
Obsolescence.

ANSWERS:
1. B
2. D
3. B
4. A
5. A
6. C
7. D
8. B
9. D
10. A
11. B
12. B
13. C
14. B
15. C
16. C
17. D
18. C
19. D
20. C
Reference:
Ocampo, R. R. (2010). Auditing Problems Reviewer. Manila.