Week 10 Part 1

Question 1

what does non-current assets normally consist of?

Answer 1

property, plant, machinery

Question 2

how are NCAs valued in FSs?

Answer 2

book value

cost - depreciation

Question 3

which key FS assertions are being tested when auditing NCA’s?

Answer 3

existence (make sure they exist)
valuation (valued accurately)
completeness (no assets missing)
rights & obligations (they own them)

Question 4

sources of evidence when auditing NCAs?

Answer 4

• NCA register
• purchase invoices
• looking at physical assets
• ownership deeds (for land & buildings)
• cash book
• depreciation policy
• capital expenditure budgets

Question 5

what is the audit procedure for NCAs?

Answer 5

1) obtain NCA register & match total with FS total
2) select sample of assets from NCA & physically inspect
3) select sample of assets and inspect to ensure inclusion in FS
4) inspect assets for impairment
5) match valuation report to FS for revalued assets
6) inspect documents to ensure ownership in client’s name
7) obtain breakdown of disposals & match to FSs
8) match sample of disposal proceeds to source docs
9) recalculate profit/loss on disposal & match to FS
10) assess profit on disposals for reasonableness of depreciation policy
11) recalculate depreciation charge
12) perform proof in total calculation for depreciation charged

Question 6

examples of intangible non-current assets

Answer 6

R&D, patent, trademark, goodwill

Question 7

intangible non-current assets involve which key FS assertion?

Answer 7

existence

Question 8

can R&D be expensed and/or capitalised?

Answer 8

yes

if it’s expected to derive future economic benefit, it can be capitalised

over time it will be amortised

Question 9

sources of evidence for auditing intangible NCAs?

Answer 9

• invoices (for cost)
• timesheets (salary for R&D labour)
• project plan
• lisence agreements (t.marks/patents)
• cash book/ bank statement

Question 10

audit procedures of intangible NCAs?

Answer 10

1) obtain breakdown of capitalised costs & match it to FSs
2) match invoices to sample of capitalised costs
3) inspect board minutes for convos involving intangible NCAs
4) discuss project details w management to evaluate compliance
5) inspect budget to assess financial feasibility
6) inspect project plan to assess compliance
7) inspect purchase documents
8) inspect specialist valuation reports
9) inspect budgets to see forecast for financial benefit receipts from asset
10) recalculate amortisation charge
11) inspect licenses to ensure amortisation period is consistent

Question 11

do you ever depreciate land?

Answer 11

no

land has infinite useful life