Marissa is an audit intern working at Marshall CPA firm. Her supervisor at Marshall CPA firm has explained that the audit of property, plant and equipment and the related accounts ties in to management's expectations of the firm's earnings. Marissa is unclear as to how this relationship works and asks the supervisor to elaborate. Which of the following would be the most accurate response? O The relationship is fairly straightforward. If the client's management is keen to show strong earnings to beat analysts' expectations, they may manipulate depreciation expenses to boost these earnings. O The best way to think about this relationship is to think about how fixed assets are depreciated over time, and the incentive management has to shorten useful lives to decrease depreciation expenses. O The relationship works on the premise that when property, plant and equipment is amortized, the firms earnings are boosted through the accelerated amortization of fixed assets. O None of these answer choices are correct.

Marissa is an audit intern working at Marshall CPA firm. Her supervisor at Marshall CPA firm has explained that the audit of property, plant and equipment and the related accounts ties in to management's expectations of the firm's earnings. Marissa is unclear as to how this relationship works and asks the supervisor to elaborate. Which of the following would be the most accurate response? O The relationship is fairly straightforward. If the client's management is keen to show strong earnings to beat analysts' expectations, they may manipulate depreciation expenses to boost these earnings. O The best way to think about this relationship is to think about how fixed assets are depreciated over time, and the incentive management has to shorten useful lives to decrease depreciation expenses. O The relationship works on the premise that when property, plant and equipment is amortized, the firms earnings are boosted through the accelerated amortization of fixed assets. O None of these answer choices are correct.

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

Chapter14: Completing A Quality Audit

Section: Chapter Questions

Problem 31CYBK

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