[Anonymous]

The Cosby CPA firm is auditing the financial statements of Hamster, Inc. for the latest year. Hamster manufactures widgets in its factory located in Gaffney, South Carolina. The auditors are currently analyzing each of the entries made to the repair expense account. What is one of the purposes for doing this testing?

A The auditors hope to gain evidence that the company’s liabilities are not overstated.

B The auditors hope to gain evidence that the company’s net income is not understated.

C The auditors hope to gain evidence that the company’s current assets are not overstated.

D The auditors hope to gain evidence that the company’s current assets are not understated.

The Ans is B, my question why cant it be D? Because if B is true, D is true as well.

[Anonymous]

@ I think barelystayingsane is correct. The trick is, repair & expense deals with Fixed asset not current asset. Hence, B is the most correct answer. Audit is full of word tricks 🙁

[Iron_Victory]

I think we should analyze what the question is trying to convey.

“The Cosby CPA firm is auditing the financial statements of Hamster, Inc. for the latest year. Hamster manufactures widgets in its factory located in Gaffney, South Carolina. The auditors are currently analyzing each of the entries made to the repair expense account. What is one of the purposes for doing this testing?”

analyzing each entry to the repair expense – would have us trying to substantiate several assertions made by management

Occurrence – did these repairs actually happen?

Completeness – are all the repairs that took place recorded here? (would have to corroborate with other evidence such as repair invoices and cross reverence)

Cut off – are all the repairs recorded in the correct period?

Valuation and Allocation – should any of these repairs be capitalized?

Given the list of answers they don't align with the first three assertions so we can rule them out.

Now you are on the right track when thinking about understatement of assets as this is what would happen if we've expensed repairs that should been capitalized.

Barelystaingsane is correct when saying that equipment is not a current asset. So that would disqualify answer D. I personally like to think of assets in Current Assets, Fixed Assets, Other Assets. So when I see building, equipment, land I go right for Fixed assets noted in my thought process.

If we are overstating expenses we are understating Net Income, hence answer B.

CPjAson, this would be not so great from a tax standpoint as we are going to underpay our actual tax liability, our EPS will be understated, our dividends will be lower than they should, our RE would be understated So this creates some problems different than overstatement of Net Income but problems none the less.

AUD - (74),78
BEC - 85
FAR - 86
REG - 84

[Iron_Victory]

I think we should analyze what the question is trying to convey.

“The Cosby CPA firm is auditing the financial statements of Hamster, Inc. for the latest year. Hamster manufactures widgets in its factory located in Gaffney, South Carolina. The auditors are currently analyzing each of the entries made to the repair expense account. What is one of the purposes for doing this testing?”

analyzing each entry to the repair expense – would have us trying to substantiate several assertions made by management

Occurrence – did these repairs actually happen?

Completeness – are all the repairs that took place recorded here? (would have to corroborate with other evidence such as repair invoices and cross reverence)

Cut off – are all the repairs recorded in the correct period?

Valuation and Allocation – should any of these repairs be capitalized?

Given the list of answers they don't align with the first three assertions so we can rule them out.

Now you are on the right track when thinking about understatement of assets as this is what would happen if we've expensed repairs that should been capitalized.

Barelystaingsane is correct when saying that equipment is not a current asset. So that would disqualify answer D. I personally like to think of assets in Current Assets, Fixed Assets, Other Assets. So when I see building, equipment, land I go right for Fixed assets noted in my thought process.

If we are overstating expenses we are understating Net Income, hence answer B.

CPjAson, this would be not so great from a tax standpoint as we are going to underpay our actual tax liability, our EPS will be understated, our dividends will be lower than they should, our RE would be understated So this creates some problems different than overstatement of Net Income but problems none the less.

AUD - (74),78
BEC - 85
FAR - 86
REG - 84

[mtaylo24]

My guess is A, C, & D are all balance sheet related. B is from the income statement…

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[mtaylo24]

My guess is A, C, & D are all balance sheet related. B is from the income statement…

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Author]

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