[nalratoss]

Here’s a question that bothers me from time to time. It involves the direction of testing.

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the relevant assertion that all

A. Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period
B. Expenditures for property and equipment have been recorded in the proper period
C. Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense
D. Expenditures for property and equipment have not been charged to expense

This is about whether capitalized expenditures and noncapitalized expenditures are classified correctly or not. My question is, why is the answer D, not C?

[Zyx]

I was struggling with this for a while as well. Let's think this way, people make mistake in expensing items that should be capitalized. The auditor is more concerned about capitalation because if you expense instead of capitalizing, it decreases net income which lowers taxes. So to test capitalization, you will look at repair&maintenance so find if capitalized items (expenditures of property and equipment) have not been expensed. The wording in audit exam always confused me. I hope this helps!

REG: 77 x2
BEC: 81 x3
FAR: 68 retake 10/1
AUD: 8/27

[cleethree]

@nalratoss, Zyx brings up a good point and also you have to look at the way the question is worded. You wouldn't analyze the correct expense account to check the account that expenditures were properly classified there, you would analyze another account were expenditures may have been misclassified to that account.

If the question asked “An auditor analyzes PP&E accounts primarily to obtain evidence in support of the relevant assertion that all”, then C would be appropriate. But since it is the other way around, D is correct.

[Author]

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