Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 32AOQ
To assure accountability for fixed-asset retirements, management should implement an internal control that includes:
- (1) Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets.
- (2) Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired.
- (3) Utilization of serially numbered retirement work orders.
- (4) Periodic observation of plant assets by the internal auditors.
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The 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?
Describe the manner in which each of the above procedures might be tested.
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.
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.
Chapter 13 Solutions
Connect Access Card for 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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- The 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_forwardYou have recently been hired to evaluate the fixed assets system for Alawda Manufacturing Company. Use internal control activities and conceptual fixed asstets system as a reference to prepare a list of questions or appropriate procedures to evaluate Alawda’s internal control structure as it pertains to fixed assets processing for its factoryarrow_forwardFor 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_forward
- 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.arrow_forwardWhich of the following best describes the auditors' typical observation of plant and equipment? The auditors observe all additions to plant and equipment made during the year. The auditors observe major additions to plant and equipment made during the year. The auditors observe a physical inventory of plant and equipment, annually. The auditors observe all major plant and equipment items in the clients' accounts each year.arrow_forwardIn 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.arrow_forward
- In testing for unrecorded retirements of equipment, an auditor might not. a. Select items of equipment from the accounting records and then attempt to locate them during the plant tour. b. Compare depreciation expense with the prior year's depreciation expense. c. Trace equipment items observed during the plant tour to the equipment subsidiary ledger. d. Scan the general journal for unusual equipment retirements.arrow_forwardA 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.arrow_forwardexplain the process of auditing the followingtransactions/accounts below. • Inventories• Property, plant, and equipment (PPE)• Renewal and reconditioning costs• Revenues• Rehabilitation bondsarrow_forward
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