13 -- Evidence—Other Assets, Liabilities, and Equities

13 -- Evidence—Other Assets, Liabilities, and Equities

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CPA AUDITING - STUDY UNIT 13 Evidence Other Assets, Liabilities, and Equities: Core Concepts A. Substantive Testing of Property, Plant, and Equipment (PPE) 1. The Completeness assertion is tested by reconciling the subsidiary records for cost, current depreciation expense, and accumulated depreciation with the general ledger and the amounts to be included on the financial statements; calculating and comparing ratios for the current period with those of prior periods and industry norms; vouching significant debits from the repairs and maintenance expense account to determine whether any should have been capitalized; and vouching additions to property, plant, and equipment to discover non- capital items. 2. The Accuracy assertion is tested by obtaining a management representation letter that includes assertions relating to amounts and classifications. 3. The Valuation and allocation assertion is tested by vouching PPE purchase entries to the payment records; vouching additions and disposals; and testing depreciation methods and their application to determine that they are generally accepted and applied consistently. 4. The Existence assertion is tested by vouching a sample from the recorded asset additions by examining the supporting documents and inspecting the physical assets; and inspecting significant assets in the beginning balance as well as additions. 5. The Cutoff assertion is tested by examining additions and disposals near year end to assure recording in the proper periods. 6. The Rights and obligations assertion is tested by examining titles and leases; inspecting insurance policies; and inspecting property tax records. 7. The Occurrence assertion is tested by verifying the authorization, execution, recording, and custody aspects of a sample of transactions. 8. The Classification and understandability assertion is tested by reading the financial statements to determine that property, plant, and equipment is properly reported as a long- term asset at historical cost net of accumulated depreciation (except for land, which is reported at historical cost); and making inquiries of management regarding appropriate footnote disclosures and other reporting issues. B. Substantive testing of investments. An auditor may require special skill or knowledge regarding some assertions and the assessment of inherent and control risks, for example, an understanding of GAAP for derivatives . 1.
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13 -- Evidence—Other Assets, Liabilities, and Equities

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