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

While going with the audit of a manufacturing company, the relationship between the audit of property, plant, and equipment accounts and the audit of repair and maintenance accounts has to be maintained because PPE accounts is a capital account and that has to be maintained alongwith some revenue account which keeps the PPE active in workable position. The audit has to take place while considering the direct relationship between the PPE and Repair and Maintenance accounts related to them. The audit can be done through following procedures:

1. Vouching all the repair and maintenance vouchers and determining whether the expense is capital or revenue nature one, the authenticity of the transactions.
2. The amount send on Repair and Maintenance should be in proportion to value of the PPE used in production. So, higher the production, higher would be the break-downs and wear and tears which causes that much Repair and Maintenance expense. So proportion of the increase in production would be the proportion increase in Repair and Maintenance expense each year.
3. The auditor could scrutinize the General Ledger in order to verify the PPE and R&M a/c and avoid any material mis-statement in the concerned accounts.

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