Asset Verification Quiz and Flashcards: Key Audit Procedures

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Questions and Answers

What is the primary purpose of reviewing board minutes during an audit?

To ensure that purchases have been authorized by directors or senior management (correct)

To verify the accuracy of financial statements

To inspect claims documentations and bank statements

To scrutinize the non-current asset register and general ledger

What is the purpose of verifying materials, labor cost, and overheads to invoices, wages records, etc.?

To scrutinize the non-current asset register and general ledger

To test the valuation assertion of self-constructed assets (correct)

To confirm the occurrence of a transaction

To inspect claims documentations and bank statements

What is the criteria for capitalizing an expenditure as a self-constructed asset?

If it enhances the economic benefits of the asset in excess of its previously assessed standard of performance (correct)

If it is a regular operating expenditure

If it relates to a major inspection of overhead that reduces the economic benefits of the asset

If it is a non-routine maintenance expenditure

What is the purpose of reviewing accounts to ensure that finance costs have been capitalized or not capitalized on a consistent basis?

To test the completeness assertion of self-constructed assets Signup and view all the answers

What is the purpose of testing disposals during an audit?

To confirm rights and obligations, completeness, occurrence, and accuracy of disposals Signup and view all the answers

What is the purpose of depreciating the cost of a self-constructed asset over its useful economic life?

To reflect the consumption of the economic benefits of the asset over its useful economic life Signup and view all the answers

What is the primary objective of tests of rights and obligations in a PPE audit?

To confirm the client's ownership and control of PPE Signup and view all the answers

During a PPE audit, what is the purpose of inspecting title documents or title deeds?

To confirm the client's rights and obligations Signup and view all the answers

What is the primary objective of depreciation testing in a PPE audit?

To evaluate the reasonableness of depreciation estimates Signup and view all the answers

What is the purpose of reviewing capitalization of expenditures during a PPE audit?

To ensure accurate capitalization of expenditures in accordance with company policy Signup and view all the answers

What is the primary objective of physical inspection during a PPE audit?

To verify the existence and condition of PPE Signup and view all the answers

What is the purpose of reviewing architect' certificates, solicitors' completion statements, and suppliers' invoices during a PPE audit?

To verify the completeness of PPE additions Signup and view all the answers

What is the primary purpose of performing physical inspection on selected items during a PPE audit?

To ensure the selected items exist and are in a working condition Signup and view all the answers

What is the main objective of testing the valuation assertion during a PPE audit?

To ensure the PPE balances are mathematically correct and proper valuation method has been used Signup and view all the answers

Which of the following is NOT a test of the existence assertion during a PPE audit?

Verifying the depreciation method used Signup and view all the answers

What is the main purpose of testing the rights and obligations assertion during a PPE audit?

To determine whether the PPE items belong to the client Signup and view all the answers

What is the consequence of a lack of completeness in the PPE audit?

Understatement of PPE Signup and view all the answers

Which of the following is a test of the completeness assertion during a PPE audit?

Selecting a sample of PPE transactions to verify they have been recorded Signup and view all the answers

Study Notes

Valuation Assertion

Relates to the depreciation of Property, Plant, and Equipment (PPE).
Review the client’s depreciation method for compliance with accounting standards.
Examine useful life estimates of PPE against industry standards for reasonableness.
Professional judgment is critical in evaluating estimates.
Recalculation of PPE depreciation must be performed and compared to client figures.

Rights and Obligations Assertion

Tests whether the client owns all PPE reported in financial statements at the reporting date.
Sample PPE items in the register for testing.
Verify ownership through title documents or deeds of selected PPE items.
Validate additions with supporting documents like architect certificates and supplier invoices.
Review capitalization of expenses to ensure proper capital/revenue classification.
Assess purchase authorizations through review of board minutes.

Self-Constructed Assets

Verify material, labor costs, and overheads against invoices and payroll records.
Ensure proper allocation of expenditures to assets.
Capitalize expenditures that enhance economic benefits or restore asset components.
Review costs to prevent profit elements from being included in capitalized expenses.
Ensure consistent treatment of finance costs in capitalization.

Disposals

Confirm rights, obligations, completeness, occurrence, and accuracy during disposals.
Special attention is needed to prevent overstating the value of PPE.

Audit Procedures for PPE

Test assertions: existence, valuation, completeness, and rights and obligations.
Ensure PPE reported exists and reflects actual economic value.
Verify all transactions for PPE are recorded to prevent understatement.

Completeness Assertion

Ensure all PPE transactions during the year have been logged.
Understatement risks arise from lack of completeness.

Existence Assertion

Tests involve verifying that the PPE balances on the balance sheet actually exist.
Physical inspections are conducted on sampled PPE items to confirm existence and working condition.

Valuation Assertion in PPE Audit

Ensure mathematical correctness in PPE balances.
Appropriate valuation methods must be applied during audits.

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Description

This quiz assesses your understanding of audit procedures for verifying assets, including reviewing board minutes, inspecting claims documents, and scrutinizing non-current asset registers and general ledgers. Test your knowledge of audit tests for self-constructed assets, valuation, and completeness.

Audit Procedures for Asset Verification