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

Ans. Repairs & maintences is a revenue account nauture and property,plant and equipment is a capital account nature. repairs & maintances are both an inseparable part of the manufacturing process. Expenses accounts analysis involves auditor examination of underlying documention of individual transactions and amounts making up the detail of the total expenses account. repairs & maintenance have a high likelihood of material misstatement and must be analyzed thoroughly to determine whether they erroneously include property, plant & equipment transactions.

Many clients may accidentally or intentionally record purchases of assets in the repair $ maintenance account. The misstatement is caused by a lack of understanding of generally accepted accounting principles and some clints desire to avoide income taxes because these expenses become deductions to the revenues. In addition. repair & mainrenance acccounts can be verified to uncover unrecorded property purchases. In other cases, however management has capitalized repair & maintenance expenses to boost profitability and assets. As a auditor typically vouches the larger amounts debited to those expense accounts at the same time that property accounts are being audited.