Page 212 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 10.14 Keywords

Fixed Asset: A long-term tangible piece of property that a firm owns and uses in the production
of its income and is not expected to be consumed or converted into cash any sooner than at least
one year’s time. Fixed assets are sometimes collectively referred to as “plant.”
Modified Accelerated Cost Recovery System (MACRS): The MACRS depreciation model is used
for calculating business income taxes and not determining the value of a company.

10.15 Review Questions

1. Briefly explain the audit procedure of an income statement.
2. What do you understand by audit of financial statements? Why it is needed and give brief
notice of various steps involved in carrying out financial statement audit?
3. Discuss Audit procedure for position statement with respect to depreciation of fixed asset.
4. What are the various methods applied by auditors for carrying out valuation of inventory?
5. Briefly explain the audit of share capital, reserve and surplus, current assets and liabilities.

6. Describe audit procedure for investment and securitization of investment.
7. Write short notes on
(a) SPV’s
(b) Methods of calculating depreciation

Answers: Self Assessment

1. Comparisons between historical and current-year data; evaluations of key ratios; appraisals
of financial trends
2. Internal controls testing
3. Credit risk

4. income lines
5. revenue and expenses
6. net realizable value

7. cashbook
8. material account balance
9. True
10. False
11. True

12. True
13. True

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