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

For the audit of property, plant and equipment first we need to see the existence of the assets and then also verify that is the ownership of the assets belongs to the company or not after this is done we need to verify that whether the repairs and manintenance are to be capitalized or not this will completly depend upon the repairs and maintenance if the repairs and maintenance done increases the usefullnes of the assets or increases the life of the assest then the value of the repairs and maintenance are to be capitalized if there is no increase in the usefullnes or the life of the assets then value is debited to profit & loss a/c.

the audit will be organize accordingly

1 check whether the repairs and maintenace where done after taking permission from the respective authority

2 check whether they were incurred during the current financial year

3 check the reports about the repairs and maintenance about the life and usefulness of the assets from the company and then get those recordes reviewed by third party evaluator

4 if the third party evaluator approves that the repairs and maintenance done actually increases the usfullnes or the life of the assest then only the value of repairs and maintenance are to be added to the value of the assets.