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Chapter 13 - Property, plant, and equipment; depreciation and depletion. In this chapter we presented the appropriate controls for property, plant, and equipment accounts, the auditors' consideration of these controls, and the substantive procedures for property, plant, and equipment. | Property, Plant, and Equipment; Depreciation and Depletion Chapter 13 1 Audit Approach—Current Accounts Versus Noncurrent Account Cash Securities Accounts Receivable Inventories Accrued Liabilities Accounts Payable Short-Term Notes Property, Plant & Equipment Intangible Assets Long-Term Liabilities Owner’s Equity Accounts High turnover accounts Audit approach—audit the balance Low turnover accounts Audit approach—audit the changes in the accounts 13- 12 10 Controls Over Plant and Equipment Use of a plant and equipment (capital budget) Maintenance of a subsidiary ledger A system of authorizations Analysis of variances from budgeted expenditures A statement of policy distinguishing between capital and revenue expenditures A requirement that purchases of plant and equipment are subjected to normal purchasing procedures Periodic physical inventories A system of retirement authorization and documentation 13- 2 6 Objectives for the Audit of Property, Plant and Equipment . | Property, Plant, and Equipment; Depreciation and Depletion Chapter 13 1 Audit Approach—Current Accounts Versus Noncurrent Account Cash Securities Accounts Receivable Inventories Accrued Liabilities Accounts Payable Short-Term Notes Property, Plant & Equipment Intangible Assets Long-Term Liabilities Owner’s Equity Accounts High turnover accounts Audit approach—audit the balance Low turnover accounts Audit approach—audit the changes in the accounts 13- 12 10 Controls Over Plant and Equipment Use of a plant and equipment (capital budget) Maintenance of a subsidiary ledger A system of authorizations Analysis of variances from budgeted expenditures A statement of policy distinguishing between capital and revenue expenditures A requirement that purchases of plant and equipment are subjected to normal purchasing procedures Periodic physical inventories A system of retirement authorization and documentation 13- 2 6 Objectives for the Audit of Property, Plant and Equipment Consider inherent risks, including fraud risks. Consider internal control over property, plant, and equipment. Determine the existence of recorded property, plant, and equipment Establish the completeness of recorded property, plant, and equipment Establish that the client has rights to the recorded property, plant, and equipment Determine that the valuation or allocation of the cost of property, plant, and equipment is in accordance with GAAP Determine that the presentation and disclosure of property, plant, and equipment are appropriate 13- 3 7 13- Substantive Tests of Property, Plant, and Equipment 13- 5 9 Audit of Intangibles Assets with definite useful lives are audited similar to property, plant and equipment Assets with indefinite useful lives (e.g., goodwill) must be tested for impairment Auditors generally rely on business valuation specialists to value goodwill for tests of impairment 13- Impairment of Long-Lived Assets Long-lived assets must be reviewed for impairment whenever events or changes in circumstances indicate that carrying value may not be recoverable Test involves projecting future cash flows If impairment is indicated by cash flows asset must be written down to fair value May require the use of a valuation specialist 13- 13-
