Chapter 14 - Chapter 14 - Auditing the Financing/Investing...

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Chapter 14 - Auditing the Financing/Investing Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment 14-1 CHAPTER 14 AUDITING THE FINANCING/INVESTING PROCESS: PREPAID EXPENSES, INTANGIBLE ASSETS, AND PROPERTY, PLANT, AND EQUIPMENT Answers to Multiple-Choice Questions 14-12 c 14-18 d 14-13 a 14-19 a 14-14 b 14-20 d 14-15 b 14-21 b 14-16 a 14-22 a 14-17 a Solutions to Problems 14-23 a. Two substantive analytical procedures that can be used to test prepaid insurance are: Examine the trend in prepaid insurance over 3-5 years to develop an expectation for the current year balance after considering any changes in operations. Compare the expectation to the current-year balance and investigate the difference if it is greater than the threshold. Compute the ratio of insurance expense to assets or sales and compare it with the prior years’ ratios. b. The following substantive tests should be performed on the schedule of prepaid insurance: Foot the schedule and trace the ending balance to the prepaid insurance account in the general ledger. Send confirmations to the entity's insurance brokers, requesting information on each policy's number, coverage, expiration date, and premiums; alternatively, examine supporting documents such as insurance bills and policies. Compare the detailed policies in the current year's insurance register with the policies included in prior years' insurance register. Recompute the unexpired portion of the prepaid insurance after considering the premium paid and the term of the policy. Examine the insurance policy coverage and ensure that costs are properly allocated to the various insurance expense accounts. Inquire of management or its insurance broker about the adequacy of the entity's insurance coverage. 14-24 a. Taylor should consider performing the following procedures in the audit of Palmer's goodwill and trademark accounts:
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Chapter 14 - Auditing the Financing/Investing Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment 14-2 Obtain a copy of the client’s detail listing of intangible assets, which should agree with the total amount of intangible assets reported on the client’s balance sheet. Examine the client’s impairment documentation to ensure that each asset is subject to the appropriate impairment testing in accordance with GAAS including the goodwill and trademark accounts. If impairment tests have not been performed on the goodwill and
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This note was uploaded on 10/16/2011 for the course AIM 6334 taught by Professor Chrits during the Spring '11 term at University of Texas at Austin.

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Chapter 14 - Chapter 14 - Auditing the Financing/Investing...

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