Substantive procedures

Question 1

procedures you would perform as part of the audit of C & A Ltd’s non-current assets in order to satisfy the ‘existence’ and ‘rights and obligations’ assertions.

Answer 1

Existence

Agree non current/fixed asset register to Financial statements and NL
Compare non current/fixed asset register to physical assets
Check opening balances brought forward
Check casting/totals

Rights and obligations
Obtain purchase invoice and review for evidence of ownership.
• Depot buildings – deeds, third party purchase summary
• Vehicles/equipment – purchase invoice, HP agreement or lease documentation (see next)
For leased assets, obtain lease documentation to determine substance/risks and

Question 2

Outline the audit procedures which you would undertake in order to establish whether non-current assets are fairly stated in the financial statements.

Answer 2

Inspect title deeds of properties - To prove ownership

Check additions on non-current assets to invoices - To verify cost, nature (classification) of the item and date of acquisition

Check costs relating to assets in course of construction to supporting documentation (e.g. invoices, payroll details) - To ensure assets are appropriately valued

Trace invoices/payroll details (relating to assets in course of construction) to non-current asset register - To ensure completeness and cut-off

Check the nature of the items capitalised - To ensure only items of capital nature included

Enquire into assets’ useful lives or residual lives - To ensure depreciation is appropriate

Reperform depreciation calculations - To ensure correctly calculated and in accordance with written policy

Reperform calculations of profit/loss on disposal and agree sales proceeds to cash records - To ensure calculated correctly

Physical inspection of assets - To ensure
• existence and in working order
stage of completion (for assets in course of construction)

Trace a sample of physical assets to asset register - To ensure all assets included (completeness)