Non Current Assets

Question 1

Key areas when testing tangible non current assets are:

Answer 1

Confirmation of ownership
Inspection of NCA
Valuation by third parties
Adequacy of depreciation rates

NCA are usually material balances on the statement of financial position

These assets are listed on a NCA register

Question 2

Key non current assertions

Answer 2

Existence
Completeness
Rights and obligations
Valuation

Question 3

Audit procedures for tangible NCA examples (existence and completeness)

Answer 3

Existence - inspect assets, focus on high value items and additions in year. Confirm that items inspected exist, are in use, are kept in good condition, have correct serial numbers

Confirm that the company physically inspects all items in the non current register each year

Completeness- obtain a summary of tangible non current assets and show how the following reconcile with the opening position;
Gross book value
Accumulated depreciation
Net book value
For a sample of assets that physically exist, agree that they are recorded in the non currents assets register

Question 4

Audit procedures for tangible non current assets ( right and obligations + valuation)

Answer 4

Rights and obligations - verify title for land and buildings by inspection of title deeds, land registery certificates, leases
Obtain a certificate from solicitors/ banks about deeds/ mortgages

Inspect registration documents for vehicles held confirming that they are in clients names

Valuation - consider reasonableness of valuation , reviewing experience of valuer, methods and assumptions used, verify that valauation bases are in line with accounting standards
Inspect draft accounts to check that client has recognised revaluation losses in the pl account
Review depreciation rates and reperform calculations
Review nca register to ensure that depreciation has been charged to all nca with a limited useful life

Question 5

Audit procedures for intangible nca (goodwill and rd)

Answer 5

Goodwill - agree thag calculations of goodwill is correct by recalculation

Review that impairment review and discuss with management
Ensure that valuation of goodwill is reasonable

Rd- confirm that capitalised development costs conform to IAS 38 criteria by inspecting details of projects and discusssions with technical managers
Confirm feasibility and visibility of projects by inspection of budgets
Recalculate amortisation to ensure it commences with production
Inspect invoices to verify expenditure incurred on rd projects

Question 6

Financial statement assertions (8)

Answer 6

Completeness
Rights and obligations
Valuation and allocation 
Existence
Occurrence
Accuracy 
Classification
Cut-off

Question 7

Assertion : completeness

Answer 7

All transactions / events thag should have been recorded; all assets etc thag should have been recorded on balance sheets; all disclosures as necessary have been made

Typical audit test for completeness:
Review of post year end items; analytical review; confirmations; reconciliations to control accounts

Question 8

Assertions: rights and obligations

Answer 8

The entity holds or contours the right to assets; LiAbilities are the obligations of the entity

Typical audit test of rights and obligations:
Review of invoices for prof of ownership; review lease agreements for right to control asset; confirmations from third parties

Question 9

Assertions: valuation and allocation

Answer 9

The elements of the fs are included at the appropriate amounts and are disclosed fairy

Typical audit test: matching amounts to invoices, recalculation, confirm consistent; reasonable accounting policy, post year end payments and invoices, expert valuation

Question 10

Assertion existence

Answer 10

Assets, liabilities and equity interests exist

Typical audit test for existence: physical verification; third party confirmations; cut off testing

Question 11

Assertions: occurrence

Answer 11

The transaction/event have occurred and pertain to the entity

Typical audit test for occurrence: inspection of supporting documentation, confirmation froM directions that transactions relate to business; inspection of items purchased

Question 12

Assertions; accuracy

Answer 12

Amounts and other data have been recorded appropriately

Typical audit tests for accuracy:
Recalculation; third party confirmation; analytical review

Question 13

Assertions: classification

Answer 13

Transactions / events are recorded in the proper accounts

Typical audit test; confirm
Compliance with law and accounting standards

Question 14

Assertions: cut off

Answer 14

Transactions/ events have been recorded in the correct accounting period

Typical audit test for cut off:
Cut off testing, analytical review

Question 15

Sources of audit confidence - NCA

Answer 15

Controls is authorisation - the analytical procedure is plausible relationship and test is completeness

Control
Is information processing, the analytical procedure is make a prediction and test is rights

Control is performance review, the analytical procedure is evaluation and test is valuation

Control is physical control, the analytical procedure is compare to actual and the test is accuracy

Control is segregation of duties, the analytical procedure is investigate anything unexpected and the test is accuracy and cut off

Question 16

Directional testing

Answer 16

Testing of overstatement of debit balances (existence / valauation) and understatement of credit balances (completeness). Works because of double entry bookkeeping

Question 17

Audit objections (for the assertions)

Answer 17

Completeness - balances represent all assets in the year end + additions and disposals the happened in the year have been recorded

Rights and obligations - the entity has rights to the assets

Valuation and allocation - NCA are correctly stated at cost less accum dep

Existence and occurrence - recorded assets represent those in use at year end + additions represent assets acquired in the year and disposals represent assets sold or scrapped in the year

Accuracy and classification- NCA are correctly stated at cost less accum dep

Cut off - additions and disposals are recorded in the correct period