Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 13, Problem 23QRA
To determine
Provide internal controls for effective control over the retirement of machinery.
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In testing for unrecorded retirements of equipment, an auditor might not
Select items of equipment from the accounting records and then attempt to locate them during the plant tour.
Compare depreciation expense with the prior year's depreciation expense.
Trace equipment items observed during the plant tour to the equipment subsidiary ledger.
Scan the general journal for unusual equipment retirements.
The internal control procedures in Forestry Company result in the following provisions. Identify the principles of internal control that are being followed in each case.
(a) Employees who have physical custody of assets do not have access to the accounting records.
(b) A prenumbered shipping document is prepared for each shipment of goods to customers.
(c) Each month, the assets on hand are compared to the accounting records by an internal auditor
.
A weakness in internal control over recording purchased equipment may cause the auditor to:
a.
Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
b.
Inspect certain items of equipment in the plant and trace those items to the accounting records.
c.
Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used.
d.
Select certain items of equipment from the accounting records and locate them in the plant.
e.
Review salvage value estimates for reasonableness.
Chapter 13 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 13 - Prob. 1RQCh. 13 - K-J Corporation has current assets of 5 million...Ch. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Explain the use of a system of authorizations for...Ch. 13 - Moultrie Company discovered recently that a number...Ch. 13 - Does a failure to record the retirement of...Ch. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 11RQCh. 13 - Prob. 12RQCh. 13 - Prob. 13RQCh. 13 - Prob. 14RQCh. 13 - Prob. 15RQCh. 13 - Gibson Manufacturing Company acquired new factory...Ch. 13 - Prob. 17RQCh. 13 - Do the auditors question the service lives adopted...Ch. 13 - Prob. 19RQCh. 13 - Explain how the existence of lease agreements may...Ch. 13 - Prob. 21RQCh. 13 - Prob. 22QRACh. 13 - Prob. 23QRACh. 13 - Gruen Corporation is a large diversified company...Ch. 13 - Prob. 25QRACh. 13 - Prob. 26QRACh. 13 - Prob. 27QRACh. 13 - Prob. 28QRACh. 13 - Prob. 29QRACh. 13 - Prob. 30QRACh. 13 - Prob. 31QRACh. 13 - To assure accountability for fixed-asset...Ch. 13 - Prob. 32BOQCh. 13 - Which of the following is an internal control...Ch. 13 - Which of the following accounts should be reviewed...Ch. 13 - Prob. 32EOQCh. 13 - Prob. 32FOQCh. 13 - Which of the following statements is not typical...Ch. 13 - Prob. 32HOQCh. 13 - Prob. 32IOQCh. 13 - An effective procedure for identifying unrecorded...Ch. 13 - Which of the following is not an overall test of...Ch. 13 - Prob. 32LOQCh. 13 - Prob. 33OQCh. 13 - Analysis of which account is least likely to...Ch. 13 - Prob. 34BOQCh. 13 - Prob. 34COQCh. 13 - Prob. 34DOQCh. 13 - A search for overstated property, plant, and...Ch. 13 - The following are typical questions that might...Ch. 13 - Prob. 36PCh. 13 - Prob. 37PCh. 13 - Chem-Lite, Inc., maintains its accounts on the...Ch. 13 - Prob. 39PCh. 13 - You are reviewing the property, plant, and...
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- For each of the following misstatements in property, plant, andequipment accounts, state an internal control that the client can implement to preventthe misstatement from occurring and a substantive audit procedure that the auditor canuse to discover the misstatement:1. Computer equipment that is abandoned or traded for replacement equipment isnot removed from the accounting records.2. Depreciation expense for manufacturing operations is charged to administrativeexpenses.3. The asset lives used to depreciate equipment are less than reasonable, expected useful lives.4. Capitalizable assets are routinely expensed as repairs and maintenance, perishabletools, or supplies expense.5. Acquisitions of property are recorded at incorrect amounts.6. A loan against existing equipment is not recorded in the accounting records. Thecash receipts from the loan never reached the company because they were used forthe down payment on a piece of equipment now being used as an operating asset. Theequipment…arrow_forwardDuring the audit of Company XYZ, John Doe, the plant manager tells you that the company purchased and an equipment at the beginning of the year that is currently being used in the factory. The equipment was recorded at cost. The manager asks you, now that we are using the machine in our production do we need to any additional accounting for the machine? Using the related GAAP and prepare a memo to the president that summarizes how to record, and the machine used in the factory.arrow_forwardDryden Company is an auto parts supplier. At the end of each month, the employee who maintains all of the inventory records takes a physical inventory of the firm’s stock. When discrepancies occur between the recorded inventory and the physical count, the employee changes the physical count to agree with the records.Required:1. What problems could arise as a result of Dryden Company’s inventory procedures?2. How could the internal control system be strengthened to eliminate the potential problems?arrow_forward
- What internal control or procedure(s) would provide protection against the following threats? A production order was initiated for a product that was already overstocked in the company’s warehouse. A production employee stole items of work-in-process inventory A production employee entered a materials requisition form into the system in order to steal $300 worth of parts from the raw materials storeroom A parts storeroom clerk issued parts in quantities 10% lower than those indicated on several materials requisitions and stole the excess quantities. A production manager stole several expensive machines and covered up the loss by submitting a form to the accounting department indicating that the missing machines were obsolete and should be written off as worthless.arrow_forwardThe plant manager of a manufacturing firm suggested in a conference of the company’s executives that accountants should speed up depreciation on the machinery in the finishing department because improvements were rapidly making those machines obsolete, and a depreciation fund big enough to cover their replacement is needed. Discuss the accounting concept of depreciation and the effect on a business concern of the depreciation recorded for plant assets, paying particular attention to the issues raised by the plant manager.arrow_forwardAn IT auditor is conducting data analysis procedures on an employee expense report file and notices several expenses for $24.99 from the same individual. The company’s policy requires that any expenses that are under $25.00 do not require a receipt. The IT auditor should: [SELECT ALL THAT APPLY a) Maintain professional skepticism and investigate these transactions further b) Pass on investigating these items further, focusing on higher dollar amounts c) Evaluate the business process approval controls, and related procedures d) Discuss fraud awareness and detection programs with management to gain an understanding of management’s commitment to fraud prevention and related entity-level anti-fraud controls.arrow_forward
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