1.

The auditors' verification of plant and equipment is facilitated by several factors not
applicable to audit work on current assets. What are these factors?
The audit work required to verify PP&E is usually a much smaller proportion of the total
audit time spent on the engagement for several reasons. First, a typical unit of property or
equipment has a high dollar value, and relatively few transactions may lie behind a large
balance sheet amount. Second, there is usually little change in the property accounts from
year to year. A third factor of contrast is the significance of the year-end cutoff of transactions
on net income. For current assets, the year-end cutoff is a critical issue; for plant assets, it is
of lesser importance. Moreover, for many companies, there may be no transactions in plant
assets occurring at the year-end.

2. Do the auditor question the service lives adopted by the client for plant assets, or do they
accept the service lives without investigation? Explain.
Auditors must question the service lives adopted by the client for plant assets.
To do otherwise would be to fail in the collection of sufficient competent evidence for
the client's depreciation policies and procedures.

3. What is a principal objective of the auditor in analyzing a Maintenance and Repairs

expense account?
The principal objective of the auditors in analyzing a Maintenance and Repairs expense
account is to disclose any capital expenditures that were erroneously recorded as expense.

4. What documentary evidence is usually available to the auditors in the client’s office to
substantiate the legal ownership of property, plant and equipment?
Deeds, title insurance policies, property tax bills, receipts for payments to a mortgagee
and fire insurance policies. However, possession of a deed and Title insurance policies are
not proof of present ownership because if the property is sold a new deed is prepared and the
seller retains the old one.
Certificates of title and registration documents can readily ascertain the ownership of
automobiles and trucks

5. Cite various substantive test the auditors could employ that might detect unrecorded
retirements of property, plant and equipment.
In testing for unrecorded retirements of equipment, an auditor might: Select items of
equipment from the accounting records and then attempt to locate them during the plant tour.

6.
A. Under these circumstances, would Ian and Ronna, CPAs, be likely to learn of the
transactions erroneously treated as revenue expenditures in Years 1 and 2? Explain.
The first audit of Kris Corporation was performed by Ian & Ronna. The company has not
been audited by any other auditor during its two previous years of operation. Under these
situations, the auditors must investigate full transactions relating to plant and equipment of
Kris Corporation for two prior years of its existence.

B. Would the income statement and statement of financial position prepared at the end of
Year 3 be affected by the above accounting errors made in Year 1 and2? If so, identify the
specific items. Explain fully.
The adequacy of the internal control over disposal and plant acquisition would be a
crucial part of this evaluation. Since Kris is a new company, reviewing earlier transactions
would be much easier. The evaluation of previous years’ transaction would also comprise
review of repairs and maintenance account which would bring the erroneous treatment of
plant acquisition as revenue expenditure in both year 1 and 2 into light.
If Ian and Ronna did not scrutinize the property transaction and the internal control in place
during the two previous years, then there would be no reasonable support for the balances of
property accounts at the end of the third year.