Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 19, Problem 20DQP
a.
To determine
Explain the purpose of the each listed internalcontrol.
b.
To determine
To state one test of control the auditor use to test for its existence
c.
To determine
To state one substantive procedure for whether the control is actually preventing the misstatement in property, plant and equipment.
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The following are typical questions that might appear on an internal control questionnaire relating to plant and equipment:
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Has a dollar minimum been established for expenditures to be capitalized?
Are subsidiary ledgers for plant and equipment regularly reconciled with general ledger controlling accounts?
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Describe the manner in which each of the above procedures might be tested.
The fixed asset acquisition procedures for Turner Brothers, Inc., are as follows:Supervisors in the user departments determine their fixed asset needs and submit bids or orders directly to contractors, vendors, or suppliers. In the case of competitive bidding, the user makes the final selection of the vendor and negotiates the prices paid. The assets are delivered directly to the user areas. The users inspect and formally receive the assets. They submit the invoice to the cash disbursements department for payment.Discuss the risks associated with this process. Describe the controls that should be implemented to reduce these risks.
Property. Plant and Equipment (PPE) are the assets that represent a material portion of the total assets and give significant impact to the presentation in an entity's financial statements.a. What is the important of internal control of fixed asset and explain THREE (3) factors that an auditor should consider in assessing the inherent risk for PPE?
Chapter 19 Solutions
Auditing And Assurance Services
Ch. 19 - Identify three asset accounts, three expense...Ch. 19 - Explain the relationship between substantive tests...Ch. 19 - Prob. 3RQCh. 19 - Prob. 4RQCh. 19 - Prob. 5RQCh. 19 - Prob. 6RQCh. 19 - Prob. 7RQCh. 19 - Prob. 8RQCh. 19 - Prob. 9RQCh. 19 - Prob. 10RQ
Ch. 19 - Which documents will be used to verify accrued...Ch. 19 - Prob. 12RQCh. 19 - Prob. 13RQCh. 19 - Prob. 14RQCh. 19 - Prob. 15.1MCQCh. 19 - Prob. 15.2MCQCh. 19 - Prob. 15.3MCQCh. 19 - Prob. 16.1MCQCh. 19 - Prob. 16.2MCQCh. 19 - Prob. 16.3MCQCh. 19 - Prob. 17.1MCQCh. 19 - Prob. 17.2MCQCh. 19 - Prob. 17.3MCQCh. 19 - Prob. 18.1MCQCh. 19 - Prob. 18.2MCQCh. 19 - Prob. 18.3MCQCh. 19 - Prob. 19DQPCh. 19 - Prob. 20DQPCh. 19 - Prob. 21DQPCh. 19 - Prob. 22DQPCh. 19 - Prob. 24DQPCh. 19 - Prob. 25DQPCh. 19 - You are auditing the financial statements of...Ch. 19 - Prob. 27DQPCh. 19 - Prob. 28DQPCh. 19 - Prob. 29DQP
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- Which of the following is NOT a characteristic of the fixed asset system?a. acquisitions are routine transactions requiring general authorizationb. retirements are reported on an authorized disposal report formc. acquisition cost is allocated over the expected life of the assetd. transfer of fixed assets among departments is recorded in the fixed asset subsidiary ledgerarrow_forwardCAATs Application—PP&E. You are supervising the audit fieldwork of Sparta Springs Company and need certain information from Sparta’s equipment records, which are maintained on a computer file. The particular information is (1) net book value of assets so that your assistant can reconcile the subsidiary ledger to the general ledger control accounts (the general ledger contains an account for each asset type at each plant location) and (2) sufficient data to enable your assistant to find and inspect selected assets. The record layout of the master file follows:Asset number.Description.Asset type.Location code.Year acquired.Cost.Accumulated depreciation, end of year (includes accumulated depreciation at the beginning of the year plus depreciation for year to date).Depreciation for the year to date.Useful life.From the data file described earlier,a. List the information needed to verify correspondence of the subsidiary detail records with the general ledger accounts. Does this work…arrow_forwardWhich of the following is not a typical internal control over long-lived assets?  a. Periodically reassess the appropriateness of depletion categories.   b. Identify obsolete or scrapped equipment and write it down to scrap value.   c. Reconcile physical asset inventory with the property ledger.   d. Periodically review management strategy and systematically assess the impairment of assets.arrow_forward
- Which of the following groups would be classified as intangible assets for financial accounting andreporting purposes? a. long-term notes receivable, copyrights, goodwill, and trademarksb. patents, computer software costs, franchises, and trademarksc. computer software costs, research and development costs for internally developed patents,patents, and goodwilld. organization costs, goodwill, costs of employee training programs, and trademarksarrow_forwardIn performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? a. Is depreciation calculation and recording automated? b. Is there periodic physical count and tagging of property, plant and equipment? Is the result of the count reconciled to ledgers and general ledgers? C. Both a and b. d. Neither a nor b. O a Od Oc Obarrow_forwardIn performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? a. Is depreciation calculation and recording automated? b. Is there periodic physical count and tagging of property, plant and equipment? Is the result of the count reconciled to ledgers and general ledgers? C. Both a and b. d. Neither a nor b. Oc O aarrow_forward
- Under IFRS, when a company chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct? a. When an asset is revalued, the entire class of property, plant, and equipment to which the asset belongs must be revalued. b. When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset belongs can be revalued. c. Revaluations of property, plant, and equipment must be made every three years. d. An increase in an asset’s book value as a result of the first revaluation must be recognized as a component of profit and loss.arrow_forward1. What are the two main characteristics of intangible assets? 2. Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles? 3. What are the factors to be considered in estimating the useful life of an intangible asset? 4. What is the nature of research and development cost? 5. Indicate the proper accounting form the following items. Organization Cost Advertising Cost Operating Lossesarrow_forward15. An internal control objective concerning property, plant and equipment (PPE) acquisitions is that they be recorded at the correct amounts and in the proper period and properly classified. In which of the following conditions would an auditor most likely assess a high level of risk of material misstatement? All material acquisitions of PPE are required to be approved by the board of directors Most additions are self-constructed by the entity a. b. C. Recently acquired loans include covenants that preclude further plant acquisitions for 5 years. d. Gross PPE increased 30% during the current periodarrow_forward
- 16. In performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions?   Group of answer choices Are depreciation policies in accordance with applicable financial reporting framework? Are disposals of property, plant and equipment properly authorized, removed from records including depreciation, and recorded in correct accounting period? Are all property, plant and equipment purchases, including finance leases, properly authorized, recorded in accordance with the capitalization threshold (e.g., P10,000) and in correct accounting period? All of the choices.arrow_forwardThe following are typical questions that might appear on an internal control questionnaire relating to plant and equipment:  Has a dollar minimum been established for expenditures to be capitalized? Are subsidiary ledgers for plant and equipment regularly reconciled with general ledger controlling accounts?  Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of risks of material misstatements.arrow_forwardIdentify each of the following as a (a) purpose of an internal control system, (b) principle of internalcontrol,or (c) limitation of internal control. Insure assets and bond key employeesarrow_forward
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