Question

Which of the following best describes the independent auditor's approach to obtaining satisfaction concerning depreciation expense in the income statement?

A. Establishing the reasonableness of useful lives and depreciation methods for depreciable assets and recomputing the depreciation expense.
B. Verifying the mathematical accuracy of the amounts charged to income as a result of depreciation expense.
C. Reconciling the amount of depreciation expense to those amounts credited to accumulated depreciation accounts.
D. Determining the method for computing depreciation expense and ascertaining that it is in accordance with generally accepted accounting principles.

Answer 1

An independent auditor verifies depreciation expense by assessing the reasonableness of depreciable assets' useful lives and methods, recomputing depreciation for accuracy, reconciling with accumulated depreciation, and ensuring compliance with GAAP.

Step-by-step explanation:

The approach of an independent auditor to obtaining satisfaction concerning depreciation expense in the income statement involves several steps. A key part of this process is to ensure that depreciation is calculated correctly and reflects the actual use and wear of the assets over time. This includes:

• Establishing the reasonableness of useful lives and depreciation methods for depreciable assets. The auditor will assess whether the estimated useful lives and chosen depreciation methods are appropriate for the asset types considering their expected usage and economic lives.
• Recomputing the depreciation expense to verify its mathematical accuracy. This ensures that the depreciation expense reported in the financial statements is calculated according to the established method and useful lives.
• Reconciling the reported depreciation expense with the amounts credited to accumulated depreciation accounts. This step ensures that the total amount of depreciation expense reported in the income statement is accurately reflected in the changes to the accumulated depreciation on the balance sheet.
• Determining whether the method for computing depreciation expense is in accordance with generally accepted accounting principles (GAAP). It involves assessing if the depreciation method used aligns with GAAP and is consistently applied year over year.