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ACCT 3222 > Ch 14: auditing investing and financing activities > Flashcards

Ch 14: auditing investing and financing activities Flashcards

1
Q

property, plant and equipment is typically ___________ risk

A

not super high

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2
Q

in PPE there is typically a _______ volume of transactions but maybe ___________ dollar value for the transaction

A

lower; higher

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3
Q

what are some activities that occur in PPE

A

acquisition, depreciation, maintenance and repairs

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4
Q

what is the activity that is the “total cost” of asset recorded in asset account

A

acquisition

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5
Q

maintenance and repairs on PPE can be _______________ or ______________

A

expenses; capitalized

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6
Q

a short term lease is for ______ or less

A

12 months

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7
Q

finance leasing option acronym

A

OWNSA

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8
Q

what does the OWNSA acronym for finance lease option stand for

A

O- ownership transfer
W- written bargain purchase option
N- 90%
S- 75%
A- alternative use

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9
Q

what are the five audit procedures for auditing PPE

A
  1. initial procedures
  2. substantive analytical procedures
  3. test of details- vouching/ tracing
  4. test of balances
  5. test of details of presentation and disclosure
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10
Q

is vouching forwards or backwards

A

backwards

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11
Q

what is the relevant assertion for vouching

A

existence

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12
Q

is tracing backwards or forwards

A

forwards

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13
Q

what is the relevant assertion for tracing

A

completeness

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14
Q

what three things are tested in the tests of balances for PPE

A
  • inspection of assets
  • valuation/ allocation
  • rights/ obligations
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15
Q

in valuation/ allocation of PPE the auditors ____________

A

recalculate depreciation (the method and the estimate)

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16
Q

what do auditors do to gain comfortability surrounding impairment (PPE)

A

inquire of management, inspect management’s documentation, and recalculate impairment loss

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17
Q

when testing the rights/ obligations for the tests of balances for PPE what do auditors do?

A
  • inspect vendor invoices
  • inspect lease agreements
  • inspect property deeds/ titles
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18
Q

in the test of details of presentation and disclosure for PPE what do auditors inspect?

A

client-prepared note

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19
Q

what are the two audit procedures for auditing long-term debt

A
  1. initial procedures
  2. substantive analytical procedures
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20
Q

what do auditors do under the test of details when auditing long-term debt

A
  • vouch sample of entries
  • confirmations as needed
  • inspect authorizations and contracts for long term debt
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21
Q

does vouching have to be done every year for long-term debt?

A

no only really needs to be done for new debts

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22
Q

confirmations for long-term debt are done with

A

banks/ financial institutions

23
Q

when inspecting authorizations for long-term debt who are the authorizations usually by?

A

board of directors

24
Q

in the presentation and disclosure audit procedure for auditing long- term debt what do auditors do

A

inspect client- prepared note

25
Q

what are the four audit procedures for auditing stockholder’s equity?

A
  1. initial procedures
  2. substantive analytical procedures
  3. test of details
  4. presentation and disclosure
26
Q

in the test of details procedure for auditing SE what does the auditor do

A

inspect, confirmations as needed, recalc as needed

27
Q

what is the auditor inspecting in the test of details procedure when auditing SE

A

board of directors minutes for authorization and details of transactions

28
Q

who are the auditors confirming with in the test of details procedure for the auditing of SE

A

transfer agent to verify outstanding shares/ transactions

29
Q

what does the auditor do in the presentation and disclosure procedure when auditing SE

A

inspect client prepare notes (ex: stock based compensation, EPS and how did they calculate basis/ dilute, dilutive securities, pensions)

30
Q

what are investing activities

A

the purchase and sale of land, buildings, equipment, and other long-term assets not generally held for resale; in addition, investing activities include the purchase and sale of financial instruments that are not intended for trading purposes

31
Q

assume that while performing analytical procedures that an auditor notices a material increase in repair and maintenance expense as a percent of net sales. what assertions may be misstates?

A

might indicate that assets that should have been capitalized were expensed. the assertion that may be misstated is classification

32
Q

what are the three main testing streams related to PPE

A
  1. acquisition of PPE
  2. depreciation of PPE
  3. disposals of PPE
33
Q

When auditing PPE, if the control are ______ and analytical procedures appear __________, the auditor may perform limited testing on the 3 transaction streams

A

strong; normal

34
Q

if a private company or not-for-profit organization is undergoing significant capital expansion, and internal controls are weak, the auditor will likely _____________ sampling and audit a more ___________ portion of fixed asset additons

A

increase; significant

35
Q

what should an auditor consider when developing an expectation for changes in long-term financing and changed in equity

A

-auditor needs to develop a good understanding of the audit client and its business environment to develop expectations regarding the client’s financial statements

36
Q

there is often a direct connection between a client’s investment in PPE and ___________

A

the entity’s financing activities

37
Q

auditor should understand how a company plans to fund ________ of LT assets

A

acquisition

38
Q

what does the sustainable growth rate calculation do?

A

provides an estimate of the rate of sales growth that can be obtained without changing the entity’s profitability or financing structure

39
Q

when should the auditor expect changes in the financing structure?

A

when sales grow significantly faster than the entity’s sustainable growth rate

40
Q

an auditor needs to be alert to equity instruments like preferred stock with mandatory redemption dates that behave like _______

A

debt

41
Q

auditor needs to ensure that equity instruments are properly ______ and ______-

A

classified; disclosed

42
Q

a key control when entering into a new loan agreement/ issuing new common stock is that transactions are handled by a __________ or ____________

A

bond trustee; transfer agent

43
Q

the payment of dividends and repurchase of stock should be authorized by _________

A

BOD

44
Q

accounting should regularly reconcile ________ to general ledger

A

subsidiary records

45
Q

it is important for __________ to authorize new financing transactions based on the entity’s strategic plans and need for funding of investment activities

A

BOD

46
Q

the three most common equity transactions that may occur on a regular basis are

A
  1. issuing shares when stock options are exercised
  2. repurchasing common stock and
  3. paying dividends
47
Q

auditor will normally confirm equity transactions with company’s _____________-

A

registar/ transfer agent

48
Q

auditor expected to confirm _________ and _________ of LT debt by direct communication with lenders and bond trustees

A

existence; terms

49
Q

all confirmation responses should be compared with ________ and any differences should be investigated

A

records

50
Q

what are the assertions related to additions of PPE

A
  • Occurrence (additions which are recorded during the period are PPE acquired during the period
  • Completeness (additions that occurred during the period have been included or recorded)
  • Accuracy (additions are correctly journalized or posted)
  • Cut-off (additions are recorded in the correct period)
  • Classification (additions are recorded at the correct PPE account)
51
Q

what are the assertions relating to disposals to PPE

A
  • Occurrence (disposals which are recorded during the period are for PPE disposed during the period
  • Completeness (disposals during the period have been included or recorded)
  • Accuracy (disposals are correctly journalized or posted)
  • Cut-off (disposals are recorded in the correct period)
  • classification (disposals are recorded in the correct PPE account)
52
Q

when can an asset under construction be depreciated?

A

can begin being depreciated when it is ready for use

53
Q

if a gain is material it may indicate what?

A

can indicate the client is potentially being too aggressive with the depreciate rate chosen

ACCT 3222 (16 decks)

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