Which of the Following Explanations Might Satisfy an Auditor Who

question 11

Multiple Choice

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?

• A) Extraordinary repairs have lengthened the life of an asset.
• B) Prior years' depreciation charges were erroneously understated.
• C) A reserve for possible loss on retirement has been recorded.
• D) An asset has been recorded at its fair value.

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Definitions:

LCM Approach

The Lower of Cost or Market method, an accounting principle requiring inventory to be recorded at either its historical cost or market value, whichever is lower, to reflect potential losses.

Market Value

An estimation of the price at which an asset or company could be bought or sold in a current market.

IFRS

International Financial Reporting Standards represent worldwide accounting norms that facilitate the creation of financial statements.

GAAP

Generally Accepted Accounting Principles, a set of rules and standards used for financial reporting and accounting.