Question

Audit procedures may be classified as follows:

Recalculation/reperformance

Observation

Confirmation

Inquiry

Inspection of documents

Inspection of physical assets

Required:

Describe how each procedure may be used to gather evidence on fixed assets and which broad financial statement assertion(s) (existence, completeness, rights, valuation, and presentation and disclosure) are being addressed by the use of each procedure.

Answer 1

1 Recalculation / reporformance of fixed assets intends to find out whether depreciation on the fixed assets have been correctly valued, or whether fixed are being shown at correct value.

Assertion addressed = This auditing procedure helps auditor to evaluate whether valuation of fixed assets is proper or not. Thus valuation assertion is being addressed by the auditor in recalculation / reperformance audit procedure.

2 . Observation of fixed assets = observation of fixed assets helps auditor to verify whether fixed assets which are being shown in books of accounts have physical existence or not or are physically present or not.

Assertion addressed = observation helps auditor to verify existence of fixed assets. Thus, existence assertion is being addressed by auditor in observation auditing procedure.

3. Confirmation of fixed assets = confirmation of fixed assets is helpful when company has its factories and fixed assets located at different places and it is not feasible to reach to all those places for observing them. in such a case auditor obtains confirmation from management regarding assets shown in books physically exist and all the assets have been shown by the company in it's books of accounts .

Assertion addressed = confirmation of fixed assets allow auditor to ensure completeness with regard to all the assets. Thus, completeness assertion is being addressed by the audited by confirmation auditing procedure.

4 . Inquiry = inquiry of method being used by the management in valuation of assets and basis of such valuation method as well as method being used by the management in calculating depreciation and the basis for such method.

Assertion addressed = inquiry helps auditor in identifying whether company is in compliance with generally accepted accounting principles with regard to presentation and disclosure with regard to assets.

5 . Inspection of documents = inspection of documents with regard to title of fixed assets helps in verifying whether company has legal right with regard to the fixed assets.

Assertion addressed = inspection of document helps auditor in verifying rights with regard to assets. Thus, rights and obligation assertion is being addressed by the inspection of document auditing procedure.

6. Inspection of physical assets = inspection of physical assets halps auditor to determine whether assets which are being shown in books of accounts exist physically or not as well as their working condition

Assertion addressed = inspection of physical asset helps auditor to determine the existence of asset. Thus, existence assertion is being addressed by the inspection of physical asset auditing procedure.