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Saturday, October 24, 2015

Audit of Property, Plant and Equipment: Internal Control Measures and Substantive Audit Procedures

Internal Control Measures

1. Additions and dispositions of fixed assets should be properly authorized and approved by the board of directors or executive committee or person to whom authority has been delegated.
2. A clearly defined and sound policy for differentiation of capital and revenue expenditures shculd be established.
3. Cost of constructed fixed assets should be controlled through work orders.
4. Fixed assets controlling account should be supported by detailed plant records.

5. Physical inspection of fixed assets should be conducted and investigated.

Substantive Audit of Property, Plant and Equipment

Existence: Recorded property, plant and equipment exist
1. Physically inspect the assets for a sample of property, plant and equipment recorded in the plant ledger.
2. Physically inspect the assets and examine supporting documentation for additions to property, plant and equipment.
3. Verify that existing retirements and disposals are recorded and properly valued.

Completeness: All property, plant and equipment are recorded
4. Perform analytical procedures.
5. Analyze repairs and maintenance for expenditures that should have been capitalized.
6. Examine lease and loan agreements to identify any liabilities that should be recorded.

Rights and obligations: Property, plant and equipment are owned by the entity
7. Determine whether liens or mortgages have been placed on property, plant and equipment by examining bank confirmations and reading minutes of the board of directors' meetings.
Valuation and allocation: Property, plant and equipment are valued in accordance with GAAP
8. Verify accuracy of recorded property, plant and equipment.
9. Verify depreciation.

Presentation and • disclosure: Property, plant and equipment are classified and disclosed in accordance with GAAP
10. Review financial statements and perform analytical procedures to determine whether accounts are classified and disclosed in the financial statements in accordance with GAAP.

Copyright 2015 @philcpareview

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