Chapter 19 Flashcards
Estimated unpaid obligations for services or benefits that have been received prior to the balance sheet date
Accrued Liabilities
The division of certain expenses, such as depreciation and manufacturing overhead, among several expense accounts
Allocation
The examination of underlying documentation of individual transactions and amounts making up the total of an expense account
Expense Account Analysis
A computer file containing records for each piece of equipment and other types of property owned; the primary accounting record for manufacturing equipment and other property, plant, and equipment accounts
Fixed Asset Master File
A record of insurance policies in force, the expiration date of each policy, premium amount and terms, and other policy specifics
Insurance Register
Asset accounts typically associated with acquisition and payments cycle
Cash, inventory, supplies, property, plant, and equipment, patents, trademarks, and copyrights, prepaid rents, prepaid taxes, prepaid insurance
Expenses accounts typically associated with acquisition and payments cycle
Costs of goods sold, rent expense, property taxes, income tax expense, insurance expense, professional fees, retirement benefits, and utilities
Liabilities accounts typically associated with acquisition and payments cycle
Accounts payable, rent payable, accrued professional fees, accrued property taxes, other accrued expenses, income taxes payable
The totals for all records in the master file equal the general ledger balances for what related accounts?
Equipment, depreciation expense, and accumulated depreciation
Auditors verify equipment differently from current asset accounts for three reasons:
- There are usually fewer current period acquisitions of equipment, especially large equipment used in manufacturing.
- The amount of any given acquisition is often material.
- The equipment is likely to be kept and maintained in the accounting records for several years.
In audit equipment and related accounts, it is helpful to separate the tests into the following categories:
- Perform analytical procedures
- Verify current year acquisitions
- Verify current year disposals
- Verify the ending balance in the asset account
- Verify depreciation expense
- Verify the ending balance in accumulated depreciation
Why must companies record current year additions correctly?
The assets have long-term effects on the financial statements. The failure to capitalize a fixed asset, or the recording of an acquisition at the incorrect amount, affects the balance sheet until the company disposes of the asset. The income statement is affected until the asset is fully depreciated.
Balance-Related Audit Objectives
Current year acquisitions in the acquisitions schedule agree with related master file amounts, and the total agrees with the general ledger (Detail Tie-in)
Common Tests of Details of Balance Procedures
Foot the acquisitions schedule.
Trace the individual acquisitions to the master file for amounts and descriptions.
Trace the total to the general ledger.
Balance-Related Audit Objectives
Current year acquisitions as listed exist (Existence)
Common Tests of Details of Balance Procedures
Examine vendors’ invoices and receiving reports.
Physically examine assets.
Balance-Related Audit Objectives
Existing acquisitions are recorded (Completeness)
Common Tests of Details of Balance Procedures
Examine vendors’ invoices of closely related accounts such as repairs and maintenance to uncover items that should be recorded as equipment.
Review lease and rental agreements.