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1 | | Prepaid insurance should be |
| | A) | Amortized over the fiscal period. |
| | B) | Expensed when paid. |
| | C) | Amortized over the period of coverage. |
| | D) | Amortized over the calendar period. |
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2 | | In auditing intangible assets and goodwill, an auditor would likely review or recompute amortization expense and/or determine whether the write-off period appears reasonable. This would support managements assertion of |
| | A) | Valuation and allocation. |
| | B) | Existence. |
| | C) | Completeness. |
| | D) | Rights & obligations. |
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3 | | When auditing prepaid insurance, an auditor discovers that the original insurance policy on a key piece of manufacturing equipment is not available for inspection. The policys absence most likely indicates the possibility of a(n) |
| | A) | Insurance premium due but not recorded. |
| | B) | Fictitious piece of equipment. |
| | C) | Third-party lien holder with a secured interest in the equipment. |
| | D) | Understatement of insurance expense. |
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4 | | Which of the following situations would not support the auditors decision to reduce control risk below maximum for the audit of intangible assets? |
| | A) | The entity employs a qualified expert who reviews the value of the intangible assets on an annual basis for impairment. |
| | B) | The auditor documented, tested, and developed an understanding of the acquisition process and found the key controls to be effective. |
| | C) | The IT system that maintains the records for intangible assets has adequate controls to prevent unauthorized access. |
| | D) | The company has made no acquisitions of other companies during the fiscal year under audit. |
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5 | | Which of the following control activities would most likely allow for a reduction in the scope of the auditors tests of depreciation expense? |
| | A) | Review and approval of the periodic equipment depreciation entry by a supervisor who does not actively participate in its preparation. |
| | B) | Comparison of equipment account balances for the current year with the current-year budget and prior-year actual balances. |
| | C) | Review of the miscellaneous income account for salvage credits and scrap sales of partially depreciated equipment. |
| | D) | Authorization of payment of vendors invoices by a designated employee who is independent of the equipment-receiving function. |
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6 | | Which of the following internal controls is most likely to justify a reduction of control risk concerning plant and equipment acquisitions? |
| | A) | Periodic physical inspection and reconciliation of plant and equipment to the detailed accounting records by the internal audit staff. |
| | B) | Comparison of current-year plant and equipment account balances with prior-year actual balances. |
| | C) | Review of prenumbered purchase orders to detect unrecorded trade-ins. |
| | D) | Approval of periodic depreciation entries by a supervisor independent of the accounting department. |
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7 | | To strengthen control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic |
| | A) | Increase in insurance coverage. |
| | B) | Inspection of equipment and reconciliation with accounting records. |
| | C) | Verification of liens, pledges, and collateralizations. |
| | D) | Accounting for work orders. |
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8 | | Due to a deficiency observed in an entitys control over recording retirement of equipment, the auditor may decide to |
| | A) | Trace additions to the other assets account to search for equipment that is still on hand but no longer being used. |
| | B) | Select certain items of equipment from the accounting records and locate them in the plant. |
| | C) | Inspect certain items of equipment in the plant and trace those items to the accounting records. |
| | D) | Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. |
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9 | | Which of the following procedures is most likely to prevent the improper disposition of equipment? |
| | A) | Separation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders. |
| | B) | The use of serial numbers to identify equipment that could be sold. |
| | C) | Periodic comparison of removal work orders to authorizing documentation. |
| | D) | Periodic analysis of the scrap sales and the repairs and maintenance accounts. |
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10 | | Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for |
| | A) | Investigation of variances within a formal budgeting system. |
| | B) | Review and approval of the monthly depreciation entry by the plant supervisor. |
| | C) | Segregation of duties of employees in the accounts payable department. |
| | D) | Examination by the internal auditor of vendor invoices for property acquisitions. |
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11 | | Property, plant, and equipment transactions include all of the following, except: |
| | A) | Self-construction of a new office building. |
| | B) | Acquiring capital assets in exchange for stock. |
| | C) | Recording operating leases. |
| | D) | Abandoning capital assets. |
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12 | | Which of the following is not a common internal control activity related to the acquisition of property, plant and equipment? |
| | A) | Using a budget to forecast and control acquisitions and retirements. |
| | B) | Analyzing monthly variances between authorized expenditures and actual costs. |
| | C) | Requiring acquisitions to be authorized in relevant departments by the appropriate level of management. |
| | D) | Establishing a written company policy regarding the acquisition of raw material. |
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13 | | When there are numerous property and equipment transactions during the year, an auditor who plans to set the control risk at a low level usually performs |
| | A) | Substantive analytical procedures for property and equipment balances at the end of the year. |
| | B) | Tests of controls and extensive tests of property and equipment balances at the end of the year. |
| | C) | Substantive analytical procedures for current-year property and equipment transactions. |
| | D) | Tests of controls and limited tests of current-year property and equipment transactions. |
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14 | | Which of the following would be considered an internal control deficiency associated with plant assets? |
| | A) | The estimated useful lives used for financial reporting purposes in some cases are slightly different than the classifications used for tax purposes. |
| | B) | Factory equipment acquisitions are initiated by the department head requesting the item, approved by the divisional manager, and sent to the purchasing department to acquire bids (estimates). |
| | C) | Periodic physical examination of plant assets is made and independently compared to the plant asset subsidiary ledger. |
| | D) | Replacements for plant assets are automatically authorized and processed in the next-to-last year of their estimated useful life. |
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15 | | Which of the following is not an example of segregation of duties in the property management process? |
| | A) | The employee responsible for taking a physical inventory of property should be independent of the record-keeping function. |
| | B) | The property records function should be separate from the general ledger function. |
| | C) | The employee who computes depreciation for accounting purposes should be separate from the employee who computes depreciation for tax purposes. |
| | D) | The property records function should be separate from the custodial [handling of assets] function. |
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16 | | When there are numerous plant asset transactions during the year, an auditor who plans to assess control risk at a high level for an entity usually performs |
| | A) | Extensive test of controls and limited tests of current year transactions. |
| | B) | Limited or no tests of controls and extensive substantive tests of current year transactions and ending balances. |
| | C) | Primarily substantive analytical procedures on year end balances. |
| | D) | Primarily substantive analytical procedures on current year transactions. |
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17 | | In testing plant asset account balances, an auditor decides to physically examine a sample of new additions listed on a client-prepared analysis. The procedure most likely contains evidence concerning managements assertion of |
| | A) | Valuation. |
| | B) | Existence. |
| | C) | Rights and obligations. |
| | D) | Completeness. |
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18 | | In performing a search for unrecorded retirements of plant assets, an auditor most likely would |
| | A) | Analyze the entitys repairs and maintenance account and then tour the plant facilities. |
| | B) | Tour the facilities and then inspect the entitys plant asset ledger along with insurance and tax records. |
| | C) | Inspect the entitys plant asset ledger along with insurance and tax records, and then tour the facilities. |
| | D) | Tour the facilities and then analyze the repairs and maintenance account. |
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19 | | An auditor may conclude that depreciation expense charges are insufficient by noting |
| | A) | Excessive recurring losses on the disposal of assets. |
| | B) | Insured values in excess of book values. |
| | C) | Continual trade-ins on relatively new assets. |
| | D) | Large amounts of fully-depreciated assets remain in operation. |
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20 | | Information regarding which of the following would normally not be included in an entitys financial statement disclosures related to plant assets? |
| | A) | Capital leases. |
| | B) | Depreciation expenses for tax purposes. |
| | C) | Major acquisitions/disposals of operating assets. |
| | D) | Depreciation methods and useful lives. |
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21 | | Vouching significant PP&E additions and dispositions to vendor invoices or other supporting documentation is used to test |
| | A) | Classification. |
| | B) | Cut-off. |
| | C) | Occurrence. |
| | D) | Completeness. |
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22 | | Tracing a sample of purchase requisitions to receiving reports and to the PP&E records is used to test |
| | A) | Classification. |
| | B) | Cut-off. |
| | C) | Occurrence. |
| | D) | Completeness. |
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23 | | Reviewing the expenditures included in repairs and maintenance for unusually large items is used to test |
| | A) | Completeness. |
| | B) | Occurrence. |
| | C) | Existence. |
| | D) | Classification. |
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24 | | An auditor analyses repairs and maintenance accounts primarily to obtain evidence in support of the assertion that all |
| | A) | Non-capitalizable expenditures for repairs and maintenance have been properly charged to expense. |
| | B) | Expenditures for property and equipment have not been charged to expense. |
| | C) | Non-capitalizable expenditures for repairs and maintenance have been recorded in the proper period. |
| | D) | Expenditures for property and equipment have been recorded in the proper period. |
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25 | | Which of the following combinations of procedures would an auditor be most likely to perform to obtain evidence about fixed-asset additions? |
| | A) | Inspecting documents and physically examining assets. |
| | B) | Recomputing calculations and obtaining written management representations. |
| | C) | Observing operating activities and comparing balances to prior-period balances. |
| | D) | Confirming ownership and corroborating transactions through inquiries of company personnel. |
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