Question

Assume you have been hired to audit a manufacturing company. Discuss the relationship between the audit of property, plant, and equipment accounts and the audit of repair and maintenance accounts. How would you organize the audit to take this relationship into account?

Answer 1

1.As per IAS 16 PROPERTY, PLANT & EQUIPMENT any expenditure satisifies the recognition criteria ,it should be capitalised otherwise charged to income statment. That is for capitalisation, expenditure should have capability to increase future economic benifits & cost should be reliabely measurable.

2.As an Auditor of a manufacturing company you should check whether entity comly IAS 16 provisions or not.That is any capital expenditure wrongly treated as revenue expenditure.

3.We should also check the resonableness of expenditure related to repairs and maintaince based upon usage and period of property , plant and equipment.

4.There is a direct relationship involved between the audit of PPE & its related repairs & maintenance accounts since there is a possibility that capital expenditure was wrongly classified as revenue and vice-versa.

5.While auditing these accounts, the auditor will scrutinize its GL in order to prevent material mis-statement in the preparation of the entity's financial statement for the period under audit.