Repairs and maintenance Assume that an auditor determines that a client's policy related to recording repairs and maintenance is reasonable, but the auditor has concerns about whether the policy is adhered to. What might cause such concerns and how will the auditor adjust the substantive procedures to be performed?
Some clients might be motivated to record some asset purchases as an expense in order to reduce taxable income. Management might attempt to not comply with the policy because of incentive to manipulate reported earnings, for example, decrease reported earnings in a good period and vice versa in a poor period. These incentives might arise because of compensation plans.
If the auditor perceives that such risks are applicable to a particular client, the auditor will adjust the procedures, usually by requesting that the client prepare a schedule of both fixed-asset additions and repair and maintenance expense transactions. Selected transactions from both schedules can be vouched to vendor invoices, work orders, or other supporting evidence to determine their proper classification.
You might also like to view...
If a business records revenues when earned, regardless of whether cash has been received, and records expenses when they are incurred, the accounting system is a(n)
a. cash basis of accounting; b. accrual basis of accounting; c. modified cash basis of accounting; d. either A or B; e. either B or C
Explain what is meant by the "user-based definition" of service quality
What will be an ideal response?
At a medical check-up, the fear that a disease will be found is a
a. monetary cost b. perceived cost c. social cost d. physical cost e. dual cost
"Product" means
A. all the elements in a firm's marketing mix. B. something that has been produced, packaged, branded, and given a warranty. C. the entire physical output of a firm. D. a physical good with all its related features. E. a physical good or service that offers potential customer satisfaction.