2. XYZ is conducting an audit of the property, plant, andequipment records of AQA Corporation. XYZ selected twospecific assets for closer inspection. XYZ has examineddocumentation related to each asset's original purchase andcompared it to the recorded cost, physically inspected theitem to determine that it is still in the possession of thecompany and conducted other similar assuranceprocedures.The final step in the audit of these accounts is to test thecalculations of depreciation expense and accumulateddepreciation. XYZ has asked you to perform this final procedurefor 2018. Below is a schedule of the two assets, with thedepreciation values determined by AQA. The building wasdepreciated by the straight-line method, and the truck by thedouble-declining balance method. Determine if the indicateddepreciation values are correct.ItemCostPurchase ServiceSalvageValueDepreciationExpense forAccumulatedDateLifeDepreciation at201812/31/18Building RO 1,200,000 July 1, 2011 25 years RO 400,000 RO 32,000RO 256,000Truck RO 80,000 Oct. 1, 2016 8 yearsRO 5,000 RO 13,184RO 35,449

In straight line method of depreciation salvage value of an asset is deducted…

Answered: ecifi -cum mpa m to mna

Business

Accounting

ecifi -cum mpa m to mna

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter12: Auditing Long-lived Assets And Merger And Acquisition Activity

Section: Chapter Questions

Problem 20RQSC

See similar textbooks

Similar questions

1. Of the following assertions, which is generally considered a particularly high risk for self-constructed fixed assets? a. Completeness b. Presentation c. Ownership (rights) d. Valuation 2. Which of the following types of fixed assets is considered to have higher inherent risk? a. Leased fixed assets b. Purchased equipment c. Vehicles d. Purchased buildings 3. Which of the following is the usual audit procedure for testing the existence assertion for fixed assets? a. Vouching a sample of additions to fixed assets made during the fiscal year being audited, to supporting vendor invoices. b. Vouching a sample of deletions of fixed assets made during the fiscal year being audited and prior years, to supporting vendor invoices. c. Tracing a sample of vendor invoices to debits to fixed assets during the fiscal year being audited. d. Substantive analytical procedures 4. An auditor has been assigned to audit the existence assertion for fixed assets. The auditor (a Mercer graduate) should…
Explain why the emphasis in auditing property, plant, and equipment is on the current period acquisitions and disposals rather than on the balances inthe account carried forward from the preceding year. Under what circumstances will theemphasis be on the balances carried forward?
explain. If, after obtaining an initial understanding of a client's internal control, the auditor wishes to further reduce the assessed level of control risk relating to plant asset transactions, the auditor should next Make extensive substantive tests of plant asset balances. Establish the physical existence of current year additions. Complete the plant asset section of the internal accounting control questionnaire. Further test those internal control procedures relating to processing and recording plant asset transactions.
Explain why the emphasis in auditing property, plant, and equipment is on the current period acquisitions and disposals rather than on the balances in the account carried forward from the preceding year. Under what circumstances will the emphasis be on the balance carried forward?
Pierce, an independent auditor, was engaged to examine the financial statements of Wong Construction, Inc., for the year ended December 31. Wong's financial statements reﬂect a substantial amount of mobile construction equipment used in the firm's operations. The equipment is accounted for in a subsidiary ledger. Pierce developed an understanding of internal control and set the control risk at moderate. Required: Identify the substantive audit procedures Pierce should utilize in examining mobile construction equipment and related depreciation in Wong's financial statements.
Which of the following controls will most likely justify a reduced assessed level ofcontrol risk for the existence assertion for equipment?(1) Internal auditors periodically select equipment items in the fixed assets masterfile and locate the related equipment on company premises.(2) Department heads are asked to provide information to the accounting department each quarter about any equipment no longer in use or somewhat damaged.(3) All contracts of equipment purchases are reviewed by both the controller andattorney to verify that legal title transfers to the client and that none representoperating leases.(4) As part of quarterly and annual inventory physical counts, factory equipment islisted and subsequently reconciled to the fixed asset master file.
In 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. Group of answer choices a c b d
Consider the following independent situations relating to the audit of five different audit clients for year ended 30 June 20X8. Assume that all the situations are material. For each of the above cases, state the appropriate audit opinion that the auditor would require. Give reasons 1. new client has changed its valuation method of property, plant and equipment. It has adopted the Fair Value Revaluation Model to replace the Historic cost measurement method. Whilst the auditor does not object to the change in the valuation model, the new method has a material effect on the financial statements and has not been disclosed. A special meeting was held between the CFO and the Finance Team and the Lead Partner from the Audit team, but nothing was resolved 2. (ii) A new start-up company specialising in air-drone mail/package delivery has grown strongly in the past year. Over the past three years the company has made consistent losses, borrowed heavily, experienced staff turnover and dealt with…
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…
In performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? A. 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? B. Are depreciation policies in accordance with applicable financial reporting framework? C. All of the choices. D. Are disposals of property, plant and equipment properly authorized, removed from records including depreciation, and recorded in correct accounting period?
You are auditing the financial statements of Austin SoftwareCompany, which is a fast-growing software development company. As part of the company’sstrategy, management has been aggressively pursuing acquisitions of other companies.Some of the prior acquisitions resulted in the recording of goodwill. During your reviewof income and expense accounts, you noted a material goodwill impairment chargeassociated with the company’s acquisition of Longhorn Software, Inc.As part of your audit, consider each of the following:a. What are the underlying accounting standards requirements that are relevant toyour evaluation of the company’s charge for the impairment of goodwill?b. What types of evidence would be relevant to your evaluation of whether management’s impairment charge is fairly stated?c. How might the use of a business valuation specialist be helpful in this year’s audit?
Nakamura, CPA, has acceptedan engagment to audit financial statements of Grant Manufacturing Company, a new client. Grant has an adequate control environment and a reasonable segregation of duties. Nakamura is about to set the control risk for the assertions related to Grant’s property and equipment.Required:Describe the key internal controls related to Grant’s property, equipment, and related transactions (additions, transfers, major maintenance and repairs, retirements, and dispositions) that Nakamura may consider in set-ting the control risk.