audit procedure NCAs Flashcards
What are the main risks of non-current asset balances being misstated?
> The business does not own the asset(s)
Asset does not exist or has been sold
Assets with rights are excluded
Assets are overstated (overstated cost/valuation, understated depreciation)
Assets are undervalued (understated cost/valuation, overstated depreciation)
Incorrect presentation.
incorrect capital allowances claimed
What is the Existence assertion audit procedure for non-current assets?
Physical verification of assets selected from the non-current asset register.
What is the audit procedure for the Rights and Obligations assertion for non-current assets?
Inspect relevant documents, such as:
Title deeds for property
Vehicle registration documents
Share certificates
Purchase invoices.
What is the Completeness assertion audit procedure for non-current assets?
Trace a sample of assets seen in use to the non-current asset register.
Review the repairs and maintenance account to identify costs that should be capitalized as non-current assets.
What is the Valuation assertion audit procedure for non-current assets?
> Inspect purchase invoices for cost.
Inspect surveyor’s report for revaluations.
For self-constructed assets:
-Agree labor costs to payroll records
-Agree subcontractor costs to invoices
-Evaluate assumptions in overhead calculations and reperform calculations
Assess depreciation policy by investigating significant profits or losses on disposal.
Recalculate the depreciation charge.
What are the main risks of intangible asset balances being misstated?
Capitalisation of research expenditure
Capitalisation of costs not directly attributable
Revaluation of assets where an active market does not exist
Inappropriate amortisation policy
Failure to perform impairment reviews.
Why is the capitalisation of research expenditure a risk in intangible assets?
Research costs should be expensed rather than capitalized, as only development costs meet criteria for capitalization.
What is the risk of capitalizing costs not directly attributable to intangible assets?
Only costs directly related to creating or acquiring the intangible asset should be capitalized; others should be expensed.
Why is revaluation of intangible assets a risk?
Revaluations are unreliable when an active market does not exist, potentially leading to overstatement.
How can an inappropriate amortisation policy misstate intangible asset values?
Using an incorrect amortisation period or method can misrepresent the expense and remaining value of the asset.
What is the risk of failing to perform impairment reviews for intangible assets?
Without regular impairment reviews, intangible assets may be overstated if their value has decreased but is not reflected in the financials.
