Auditing review T/F ch.12-Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Long-lived assets only include the tangible assets of an organization.

FALSE

Long-lived assets typically represent the smallest single category of assets in many organizations.

FALSE

Much of the inherent risk related to long-lived assets is due to the importance of management estimates.

TRUE

The auditor's procedures should include a determination as to whether tangible assets have reasonable useful lives.

TRUE

Gains on the sale of equipment usually indicate that the depreciation lives of the assets are too long.

FALSE

In the audit of the depreciation methods and possible impairment of manufacturing equipment, the auditor can tour the facility during operations to determine if any of the machines are idle.

TRUE

Internal controls over fixed assets should provide reasonable assurance that all purchases are authorized and reasonably valued.

TRUE

An inherent risk related to asset impairment is management is not typically interested in writing down the asset value.

TRUE

The client should have methods in place to identify and account for intangible-asset impairments.

TRUE

A common technique used to fraudulently misstate financial statements involves the understatement of long-lived assets through undervaluing existing long-lived assets.

FALSE

The auditor would be most likely to request a schedule of repairs and maintenance expense to satisfy the auditor about the existence of long-lived assets.

FALSE

The auditor would be most likely review the depreciation policy and test depreciation calculations to satisfy the auditor about the valuation of long-lived assets.

TRUE

The existence of fair value estimates that are unreasonable or unsupportable is indicative of a potential fraud scheme.

TRUE

The auditor should be aware of material asset additions that are in remote locations and physically inspect such assets.

TRUE

An auditor is required to gain an overall understanding of internal controls related to long-lived assets for integrated audits, but NOT for financial statement only audits.

FALSE

Asset impairment is not typically assessed by the independent auditor since it is a subjective management estimate.

FALSE

Knowledge of industry product trends is not crucial to the auditor's identification of the potential for impairment of assets as the auditor must focus attention on the accounting rules.

FALSE

When the value of a long-lived asset has been impaired, the organization must write down the asset reflecting the decline in economic benefit of the asset.

TRUE

When an organization disposes of a long-lived asset it should determine and record the gain or loss on the disposal of the asset.

TRUE

Once the auditor obtains a fixed asset additions schedule from the client, testing of the existence of the additions must immediately ensue to ensure effectiveness of the substantive procedures.

FALSE

Effective internal controls over long-lived assets include the use of identification tags secured to assets for proper tracking.

TRUE

Reclamation costs are an inherent risk associated with natural resources.

TRUE

An inherent risk associated with intangible assets such as a patent is the accounting for research and development costs

TRUE

Brown, Inc. obtained a patent for its product five years ago and should expense the entire amount of the unamortized balance if the product is no longer sold.

TRUE

Limited physical access to long-lived assets is a typical internal control that affects multiple assertions for long-lived assets.

TRUE

It is not important for an organization to have controls to track the location, quantity, condition, maintenance, and deprecation status of their long-lived assets as the external auditor gathers evidence related to these issues.

FALSE

Most natural resource companies use geologists to establish an estimate of the reserves contained in a new discovery.

TRUE

Natural resource companies cannot reassess the amount of reserves even if more information becomes available during the course of mining, harvesting, or extracting resources.

FALSE

When planning the audit procedures related to long-lived assets, the auditor is required to perform preliminary analytical procedures.

TRUE

Auditors do NOT need to know the business and economics of the business in order to perform meaningful preliminary analytical procedures.

FALSE

If preliminary analytical procedures identify some unexpected relationships, the auditor would conclude that there is not a heightened risk of material misstatements.

FALSE

Auditors will perform an analysis of leases using FASB's Codified Standards (ASC) criteria to substantiate the accounting treatment.

TRUE

Auditors often recalculate the present value of capital lease agreements to assess whether the relevant criteria for capitalizing the lease have been met.

TRUE

If unusual or unexpected relationships related to long-lived assets are identified during preliminary analytical procedures, the planned audit procedures (tests of controls, substantive procedures) would be adjusted to address the risk of material misstatement.

TRUE

An auditor should compare the unaudited financial statements with both past results and industry trends to gain an indication about the possibility of fraud.

TRUE

It is simple for auditors to test the costs capitalized for discovery of natural resources because only successful efforts may be recorded

FALSE

The obsolescence of long-lived assets is an inherent risk that should be considered by the auditor.

FALSE

Changes in the depreciable lives of equipment may be identified through a substantive audit procedure that includes analyzing depreciation expense as a percent of assets.

TRUE

Audit firms should NOT customize the audit programs based on the assessment of the risk of material misstatement when auditing long-lived assets.

FALSE

If a company has only a few long-lived assets of relatively high value, the most efficient approach for an auditor would be to use tests of details for obtaining evidence.

TRUE

The risk of material misstatement related to the existence of long-lived assets at Client A is considered low, while this risk at Client B is considered high. Sufficiency of evidence for testing the existence of equipment would be higher for client B.

TRUE

An inherent risk related to long-lived assets is the incomplete recording of disposals.

TRUE

For integrated audits, the auditor will test the operating effectiveness of important controls as of the client's year end.

TRUE

The auditor selects entity-wide controls for testing, but NOT transaction controls specific to long-lived assets.

FALSE

If control deficiencies related to long-lived assets are identified, the auditor will automatically assess those deficiencies as significant deficiencies.

FALSE