Chapter 12. Auditing Long-Lived Assets, Acquisition, Use, Impairment, and Disposal

Chapter 12. Auditing Long-Lived Assets, Acquisition, Use, Impairment, and Disposal/ Chapter 12. Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal 1. Long-lived assets only include the tangible assets of an organization. True False 2. Long-lived assets typically represent the smallest single category of assets in many organizations. True False 3. Much of the inherent risk related to long-lived assets is due to the importance of management estimates. True False 4. The auditor’s procedures should include a determination as to whether tangible assets have reasonable useful lives. True False 5. Gains on the sale of equipment usually indicate that the depreciation lives of the assets are too long. True False 6. 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 False 7. Internal controls over fixed assets should provide reasonable assurance that all purchases are authorized and reasonably valued. True False 8. An inherent risk related to asset impairment is management is not typically interested in writing down the asset value. True False 9. The client should have methods in place to identify and account for intangible-asset impairments. True False 10. A common technique used to fraudulently misstate financial statements involves the understatement of long-lived assets through undervaluing existing long-lived assets. True False 11. 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. True False 12. 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 False 13. The existence of fair value estimates that are unreasonable or unsupportable is indicative of a potential fraud scheme. True False 14. The auditor should be aware of material asset additions that are in remote locations and physically inspect such assets. True False 15. 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. True False 16. Asset impairment is not typically assessed by the independent auditor since it is a subjective management estimate. True False 17. 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. True False 18. 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 False 19. 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 False 20. 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. True False 21. Effective internal controls over long-lived assets include the use of identification tags secured to assets for proper tracking. True False 22. Reclamation costs are an inherent risk associated with natural resources. True False 23. An inherent risk associated with intangible assets such as a patent is the accounting for research and development costs True False 24. 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 False 25. Limited physical access to long-lived assets is a typical internal control that affects multiple assertions for long-lived assets. True False 26. 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. True False 27. Most natural resource companies use geologists to establish an estimate of the reserves contained in a new discovery. True False 28. Natural resource companies cannot reassess the amount of reserves even if more information becomes available during the course of mining, harvesting, or extracting resources. True False 29. When planning the audit procedures related to long-lived assets, the auditor is required to perform preliminary analytical procedures. True False 30. Auditors do NOT need to know the business and economics of the business in order to perform meaningful preliminary analytical procedures. True False 31. If preliminary analytical procedures identify some unexpected relationships, the auditor would conclude that there is not a heightened risk of material misstatements.