Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated?

Mindanao State UniversityCollege of Business Administration and AccountancyDEPARTMENT OF ACCOUNTANCYMarawi Cityd.Repairs370. The auditors are most likely to seek information from the plant manager with respect tothea.Adequacy of the provision for uncollectible accountsb.Appropriateness of physical inventory observation procedures.c.Existence of obsolete machinery.d.Deferral of procurement of certain necessary insurance coverage.371. To strengthen internal control over the custody of heavy mobile equipment, the clientwould 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.372. Which of the following statements is not typical of property, plant, and equipment ascompared to most current asset accounts?a.A property, plant and equipment cutoff error near year-end has a more significanteffect on net income.b.Relatively few transactions occur in property, plant and equipment during the year.c.The assets involved with property, plant and equipment during the year.d.Property, plant and equipment accounts typically have a higher peso value.373. For the audit of a continuing non-pubic client,, the emphasis of the testing for propertyaccounts is on:a.All transactions resulting in the ending balance.b.Tests of controls over disposals.c.Transactions that occurred during the year.d.Performing analytical procedures on beginning balances of the accounts.

AUDIT OF PROPERTY, PLANT, AND EQUIPMENT

INTERNAL CONTROL MEASURES

1.Additions and dispositions of fixed assets should be properly authorized and approved by the board of directors or

executive committee or person to whom authority has been delegated.

2.A clearly defined and sound policy for differentiation of capital and revenue expenditures should be established.

3.Cost of constructed fixed assets should be controlled through work orders.

4.Fixed assets controlling account should be supported by detailed plant records.

5. Physical inspection of fixed assets should be conducted and investigated.

SUBSTANTIVE AUDIT OF PROPERTY, PLANT AND EQUIPMENT

Existence: Recorded property, plant and equipment exist

1.Physically inspect the assets for a sample of property,

plant and equipment recorded in the plant ledger.

2. Physically inspect the assets and examine supporting

documentation for additions to property, plant and

equipment.

3.Verify that existing retirements and disposals are

recorded and properly valued.

Completeness: All property, plant and equipment are

recorded

4.Perform analytical procedures.

5.Analyze repairs and maintenance for expenditures that

should have been capitalized.

6.Examine lease and loan agreements to identify any

liabilities that should be recorded.

Rights and obligations: Property, plant and equipment are

owned by the entity

7.Determine whether liens or mortgages have been

placed on property, plant and equipment by examining

bank confirmations and reading minutes of the board

of directors’ meetings.

Valuation and allocation: Property, plant and equipment

are valued in accordance with GAAP

8.Verify accuracy of recorded property, plant and

equipment.

9.Verify depreciation.

Presentation and disclosure: Property, plant and

equipment are classified and disclosed in accordance with

GAAP

10.Review financial statements and perform analytical

procedures to determine whether accounts are

classified and disclosed in the financial statements in

accordance with GAAP.

MCQ - THEORIES

1.For internal control purposes, which of the following sets of functions does not violate the principle of segregation

of duties?

A.property records function and general ledger function

B.computing depreciation or amortization and journalizing depreciation and amortization

C.physical inventory taking and property record keeping

D.property records function and property custodial function

2. Which of the following may be a plausible explanation why the ratio of depreciation over the total cost of

property, plant and equipment during the current year decreased compared to the previous year?

A.The estimated average remaining life of the assets was revised to a shorter period.

B.Some assets still in use had been fully depreciated at the end of the previous year.

C.There is considerable decrease in the estimated scrap value of the assets.

D.Repairs and maintenance expense were heavily incurred during the year.

3. Physical examination of a sample of assets and ensuring that these assets are included in the property, plant and

equipment subsidiary ledger tests the audit objective of

A.completeness.

B.cutoff.

C.valuation of measurement.

D. ownership.

> custody and physical management of the PPE

> Accounting and FR management