In: Accounting
Your firm is auditing Samson Ltd, a large manufacturer of steel
products. You have
been assigned the audit of property, plant and equipment (PPE) for
the year-ended 30
June 2016.
Samson Ltd maintains a computerised fixed assets register. The
company has three
main classes of PPE: (1) Freehold Land & Buildings, (2)
Manufacturing Machinery,
Plant & Equipment, and (3) Motor Vehicles.
You are concerned that the depreciation rates for Motor Vehicles
may be inadequate.
You are also concerned that the recent revaluation of Freehold Land
and Buildings by
20% is too high in the current economic climate.
Required:
For each management assertion listed in the table below, provide
substantive audit
procedures in relation to one of the above PPE accounts that would
be used to gather
sufficient appropriate audit evidence.
Management Assertion Audit Procedure
Existence
Recorded PPE assets represent
productive assets in use at the
end of the reporting period
Example
• Physical inspection of a sample of PPE
items on the fixed assets register
• Examine supporting documentation for a
sample of PPE additions
• Send confirmations for a sample of PPE
items stored offsite
Completeness
PPE includes all applicable
assets used in operations at
year-end
Valuation & Allocation
PPE are stated at cost or a
valuation less accumulated
depreciation
Classification &
Understandability
PPE is properly classified in the
financial statements
Rights & Obligations
The entity owns or has rights to
all recorded PPE assets at the
end of the reporting period
1) Existance
-for a sample ofaddition made during the year ,inspect the invoices for the description to confirm that they are capital in nature and not revenue expenditure to ensure existance
2) Completeness
- recalculate the non curent asset register and trace it back to financial statement to ensure completeness
-recalculate the depreciation charge on the ledger and trace it back to depreciation balance on financial statement to ensure for completeness and accuracy
3) Valuation and accuracy
- physically verify ppe for evidence of the condition of the asset sign of impairment to ensure for valuation.
- recalculate the revaluation schedule and trace it to financial statement to ensure valuation and allocation.
4) Classification and understandability
- review the financial statement to ensure the ppe has been correctly classified among land , machine and vehicles.
- review the notes to fs to ensure that revaluation has been dsclosed,
5) Rights and obligation
-for a sample of ppe, inspect the ownership document for evidence of the name of the client to ensure for rights and obligations.
- inspect the bank mortage document to ensure that any ppe is mortaged to obtain loan to confirm oligation on ppe
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