Question

The sample from the non-current asset subsidiary ledger of audit client has brought into focus the replacement of several material Property, Plant & Equipment (PPE) assets in use at several remote locations in Western Queensland. The PPE assets are very specialised in nature and had been individually engineered to specification and their operation is crucial to your client’s success. You consult with your engagement manager and partner and they decide it will be necessary to undertake an additional substantive procedure for these assets, having the assets inspected on location.

1. What requirement for quality control is being illustrated by your (the audit supervisor) seeking the advice of your manager and engagement partner? Be sure to also indicate the relevant ASA number and paragraph.
2. You ask the new engagement team member which assertion they would be primarily testing when applying the additional substantive procedure of inspecting these PPE additions on location for this client?
3. You ask the new engagement team member to describe any pragmatic and professional implications your engagement team might explore (that is, discuss possible alternatives) as options for reliable ways to gather sufficient appropriate audit evidence to satisfy the primary assertions for the PPE additions in this scenario.

Answer 1

Solutions:

a) The requirement for quality control being illustrated by the audit supervisor seeking the advice of the manager and engagement partner is outlined in ISA 220 Para. A21-A22. It states that the engagement partner shall:

• Take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters
• Be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm;
• Be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted; and
• Determine that conclusions resulting from such consultations have been implemented.

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Para. 17 also requires timely reviews by the engagement partner at appropriate stages during the engagement to allow significant matters to be resolved on a timely basis to the engagement partner's satisfaction on or before the date of the auditor's report.

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b) We address the assertion of existence when applying the additional substantive procedure of inspecting PPE additions on location.

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c) In the audit of PPE, the auditors can perform the following audit procedures to address the assertions:

• Verify additions and disposals
• Verify reasonableness of the recorded depreciation
• Analyze repairs and maintenance expense
• Perform analytical procedures
• Inspect fixed assets