Non-current assets

Question 1

How to test completeness?

Answer 1

1. Obtain and prepare a summary of tangible non-current assets showing how the following reconcile with the opening position:
   
   • gross carrying amount
   • accumulated depreciation
   • carrying amount
2. Compare non-current assets in the general ledger with the non-current assets register and obtain explanations for differences
3. For a sample of assets which physically exist, agree that they are recorded in the non-current asset register
4. If a non-current asset register is not kept, obtain a schedule showing the original costs and present depreciation value of major non-current assets
5. Reconcile the schedule of non-current assets with the general ledger

Question 2

How to test existence?

Answer 2

1. Confirm that the company physically inspects all items in the non-current asset register each year.
2. Inspects assets, concentrating on high value items and additions in year. Confirm that the items inspected:
   
   • Exist
   • Are in use
   • Are in good condition
   • Have correct serial numbers
3. Review records of income-yielding assets
4. Reconcile opening and closing vehicles by numbers as well as amounts

Question 3

How to test valuation?

Answer 3

1. Verify valuation to valuation certificate
2. Consider reasonableness of valuation reviewing:
   
   • Experience of valuer
   • Scope of work
   • Methods and assumptions used
   • Valuation bases are in line with accounting standards
3. Reperform calculation of revaluation surplus
4. Confirm that assets that have been revalued have been revalued regularly, to ensure NBV is the FV
5. Review insurance policies in force for all categories of non-current assets

Question 4

How to test valuation - depreciation?

Answer 4

1. Review depreciation rates applied in relation to:
   - Asset lives
   - Residual values
   - Replacement policy
   - Past experiences of gains/ losses on disposals
   - Consistency with prior years accounting policies
   - Possible obsolescence
2. Review non-current assets register to ensure depreciation has been charged on all assets with a finite useful life
3. For revalued assets, ensure depreciation has been charged on the revalued amount by recalculating it for a sample of revalued assets
4. Reperform calculation of depreciation to non current assets with:
   - Previous years
   - Depreciation policy rates
5. Scrutinise draft accounts to ensure that deprecation policies and rates are disclosed in the accounts

Question 5

How to test rights and obligations?

Answer 5

1. Verify title to land and buildings by inspection of:
   - Title deeds
   - Land registry certificates
   - Leases
2. Obtain a certificate from solicitors/ bankers:

Question 5

How to test rights and obligations?

Answer 5

1. Verify title to land and buildings by inspection of:
   - Title deeds
   - Land registry certificates
   - Leases
2. Obtain a certificate from solicitors/ bankers:
   - Stating the purpose for which the deeds are being held
   - Stating deeds are free from mortgage or lien
3. Inspect registration documents for vehicles held, confirming they are in the client’s name
4. Confirm all vehicles are used for the client’s business
5. Examine documents of title for other assets
6. Review for evidence of charges in statutory books and by company search
7. Review leases of leasehold properties to ensure that company has fulfilled covenants therein
8. Examine invoices received after the year end, orders and minutes for evidence of capital commitments

Question 6

How to test rights and obligations, valuation and completeness - additions?

Answer 6

1. Verify additions by inspection of architects certificates, solicitors completion statements, suppliers invoices etc
2. Review capitalisation of expenditure by examining for non current asset additions and items in relevant expense categories to ensure that:
   - Capital/ revenue distinction is correctly drawn
   - Capitalisation is in line with consistently applied company policy
3. Inspect non current asset accounts for a sample of purchases to ensure they have been properly allocated
4. Verify that additions have been recorded by scrutinising the non current asset register and general ledger

Question 7

How to test rights and obligations, completeness and accuracy for disposals?

Answer 7

1. Verify disposals with supporting documentation, checking transfer of title, sales price and dates of completion and payment
2. Recalculation gain or less on disposal
3. Consider whether the proceeds are reasonable
4. If the asset was used as a security, ensure release from security has been correctly made

Question 8

How to test for classification?

Answer 8

1. Review non current asset disclosures in the financial statements to ensure that they meet IAS 16 criteria.
2. For a sample of fully depreciated assets, inspect the register to ensure no further depreciation is charged