During a financial statement audit of a nonissuer, you plan to rely on controls over fixed asset additions. The control requires that capital expenditures over $25,000 be approved by the CFO and supported by vendor invoices; the accounting manager then assigns asset lives based on a policy. Which control should be tested to address the risk of misclassification between repairs and capital additions?
- The CFO approval of capital expenditures over $25,000, including review of supporting invoices and capitalization criteria (correct answer)
- The bank reconciliation control because it ensures completeness of cash disbursements
- The physical inventory count of fixed assets because it addresses existence of additions
- The annual impairment analysis because it addresses valuation rather than classification
Explanation: This question addresses controls over fixed asset classification in a nonissuer audit, per AU-C 315. The risk is misclassification of repairs as capital additions. Choice A targets approval and review of capitalization, aligning with AU-C 330 for classification risks. Choice B addresses cash completeness, not classification per AU-C 315, while Choice C tests existence, and Choice D addresses valuation. Auditors should map controls to specific assertions like classification. A decision rule is to test approvals that directly prevent misclassification errors.