NEW AUDIT PPE

Question 1

Types of PPE transactions

Answer 1

• Acquisition of capital assets
• Disposal of capital assets through sale, exchange, retirement or abandonment.
• Depreciation of capital assets over their useful economic life.
• Leasing of capital assets

Question 2

Audit objectives of the account balances for PPE

Answer 2

• recorded fixed assets transactions are for actual fixed asset acquired
• fixed asset purchased should be properly authorized
• fixed asset transactions are recorded at proper amount, in the proper accounting period and proper accounts.

Question 3

control objectives for PPE

Answer 3

• PPE are correctly recorded, adequately safeguarded and properly maintained.
• All acquisitions and disposal of PPE are properly authorized.
• All acquisitions are for the use of the entity.
• All acquisitions and disposals of PPE are for the best price.
• PPE are properly recorded, appropriately depreciated and written down where necessary

Question 4

ASSESSING CONTROL RISK OF PPE

Answer 4

1. Occurrence & Authorization
   * Any purchasing process of PPE need to be
   initiated by certain dept & approved by high level authorities (eg: BOD)
   * High value/specialized tech equipment
   acquired only after specific Capital Budgeting
   process
2. Segregation of duties
   * Depends on the volume & significance of the transactions processed
   * Segregation usu. Needed for co. which has large capital projects. Eg: construction co.
3. Completeness
   * Co. need to maintain records of their PPE i.e.
   in the detailed PPE sub ledger or Fixed Asset Register (FAR) besides recording any
   transaction related to PPE in the GL
   * FAR should include info for each PPE such as Description, location & ID/serial number ,Data of acquisition & installed cost, Depreciation method

Question 5

DIFFERENCE OF AUDITING PPE TO AUDITING CURRENT ASSETS

Answer 5

• Usu. only few acquisitions of PPE (specifically manufacturing
  equipment)
• Amount associated with acquisition of PPE is often material
• PPE records maintained for several years involving other accounts to be opened ex: Depreciation, Accumulated depreciation, Disposal, Gain/Loss on disposal