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Audit-of-PPE.docx - Chapter 2: AUDIT OF PROPERTY, PLANT AND...

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Chapter 2:AUDIT OF PROPERTY, PLANT AND EQUIPMENTChapter Objectives:This chapter should enable you to know and understand:The audit program for PPE.The audit objectives and procedures to be done.Audit procedures for Property Plant and Equipment (PPE)-It is sometimes called the audit procedures for Non-Current Assets orFixed Assets.-It is really important to perform proper audit procedures for FixedAssets in order to obtain sufficient appropriate evidence.-Property, Plant Equipmentare material items on the balance sheet.There are inherent risk on PPE and auditors should be more concernedabout these items during the audit.Objective of Property Plant and Equipment (PPE) AuditThe objectives of the audit of property, plant and equipment (PPE)audit are to determine that:The property plant and equipment (PPE) exists and owned by thebusiness organization;The PPE addition are authentic and it is recorded properly at its costwhile such costs are being able to distinguish from the repairs andmaintenance expenses.Any disposal or retirements of PPE as well as the sales proceeds andother related costs for such disposal are properly recognized andrecorded in the accounting book; andLast but not least, there is proper depreciation expense in relationto the PPE are properly calculated and allocated based on its costsas well as the expected life expectancy or estimated useful life andscraped value.Risks and Control Deficiencies in Relation to PPEBelow are the key risks associated with the PPE that we commonlyencounter so far:An entity or management may intentionally account for or overstatethe PPE as well as the depreciation on such PPE.Some other expenses that should not be capitalized may have beenincorrectly capitalized.The depreciation method and the assessment of useful life of assetsmay be used resulting the overstatement or understatement of thedepreciation charge into the profit and loss account.The capitalization of borrowing costs may have been incorrectlycalculated and capitalized as asset value.Assets may have loss but still recorded in the accounting book andrecorded the depreciation expense.CONTROL DEFICIENCIESBelow are the examples of control deficiencies that we commonlyencounter during the course of the audit:There is no properly physical count of the assets. This raise doubt inthe existence of the assets.There is properly process and procedure for the disposal of assets.The segregation of duties have not been properly allocated for theauthorization of purchased, recording the assets as well as thedepreciation expense in the General Ledger (GL).Lack of competent person who manage and calculate thedepreciation schedule that may have doubt in the incurreddepreciation recorded.

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Term
Fall
Professor
Maxine

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