[CPApracticer]

Can someone please explain this one to me. I would think the auditor would pick a few retired items from the plant, and then trace it back to the accounting records to make sure that it is recorded.

In testing for unrecorded retirements of equipment, an auditor most likely would:

a.

Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

b.

Select items of equipment from the accounting records and then locate them during the plant tour.

c.

Inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger.

d.

Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment.

Explanation

Choice “b” is correct. Tracing (old) equipment recorded in the books to the actual equipment during a plant tour is a control which tests for unrecorded retirements.

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[Missy]

Retired equipment is usually disposed, so you couldn't pick a few to see if they were recorded.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[CPApracticer]

What happens if the auditor traces from the accounting record to the machine, ad sees that the machine is still in use?

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[If I can, u can too!]

the key to this question is the directional testing. the question is asking for the total population was retired or not in looking for “unrecorded” retirement item. the accounting record would be the total population.

if the auditor picks a few retired items from the plant, you may not necessarily find it in the accounting records b/c it could be retired already.

Licensed CPA since Apr 16
Order in sequence of passing
FAR-71,71,79
BEC-80
REG-72,77
AUD-56,72,72,72,80! Thank you, thank you, thank you Lord!
FAR/BEC/AUD: Becker & Yaeger lectures (Wiley & Ninja MCQs). REG: Becker lectures (Ninja MCQs).

[FIFOisbetterthanLIFO]

Think about the risk of misstatement and what the goal is here. The auditor is trying to ensure that PP&E is not overstated.

The auditor will pick assets from the company's PP&E account to find out how and where they are being used in the company's facilities. This is done to ensure that the company is not depreciating an asset that is no longer in use. Believe it or not, this can be a common mistake in a small to midsize manufacturing company. Whether or not the intention is to misstate financials can sometimes be hard to ascertain. The temptation might be to continue depreciating retired equipment versus taking a full on P&L hit (write-off).

FAR - Passed (82)
BEC - Passed (76)
AUD - Passed (89)
REG - Passed! (81)
AICPA Ethics

Licensed CPA

[Author]

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