When Performing an Audit of the Property, Plant, and Equipment

question 24

Multiple Choice

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles?

• A) Repairs have been capitalized to repair equipment that had broken down.
• B) Interest has been capitalized for self-constructed assets.
• C) Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements.
• D) The cost of freight-in on an acquisition has been capitalized.

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Definitions:

Journal Entries

Records of financial transactions in the accounting system.

Impairment Loss

The amount by which the carrying amount of an asset exceeds its recoverable amount, leading to a decrease in the asset's value on the financial statements.

International Financial Reporting Standards

A set of global accounting standards developed by the International Accounting Standards Board, aiming to bring transparency, accountability, and efficiency to financial markets around the world.

Significant Influence

The power to participate in the financial and operating policy decisions of an investee, but not control those policies, typically evidenced by ownership of 20% to 50% of the voting stock.