Chapter 13 - Auditing PP&E

Question 1

What is included in PP&E

Answer 1

• Land.
• Buildings, machinery, equipment and land improvements.
• Natural resources.

Question 2

What is the audit planning steps?

Answer 2

1- Understand the Environment
2- Assess the Risks
3- Perform Audit Procedures (Evaluate Controls and design substantive testing)
4- Complete the audit
5- Form an opinion

Question 3

What are some of the risks with PP&E?

Answer 3

-Repairs and Maintenance Capitalized or Visa Versa
- No tracking of Assets (If no control can’t capitalize)
-Fictitious Purchases
-No supporting documentation regarding asset costs

Question 4

What are some of the good control practices with PP&E?

Answer 4

• Use of a plant and equipment capital budget.
• Maintenance of a subsidiary ledger.
• A system of authorizations.
• Analysis of variances from budgeted expenditures.
• A statement of policy distinguishing between capital and revenue expenditures.
• A requirement that purchases of plant and equipment are subjected to normal purchasing procedures.
• Periodic physical inventories.
• A system of retirement authorization and documentation.

Question 5

What are some of the substantive tests with PP&E that you should perform?

Answer 5

-Obtain a summary analysis of changes in property owned and reconcile to ledgers.
-Vouch additions during year.
-Make physical inspection of major acquisitions.
-Analyze repair and maintenance expense accounts.
-Investigate the status of property not in current use.
Test the client’s provision for depreciation. Investigate potential impairments.
-Investigate retirements of property during the year.
Examine evidence of legal ownership.
-Review rental revenue.
-Examine lease agreements.
-Perform analytical procedures.
-Evaluate financial statement presentation and disclosure.

Question 6

Is Land depreciable?

Answer 6

No, land is not generally a depreciable asset.

Question 7

Are intangibles part of PP&E and if not what counts as an intangible asset?

Answer 7

Part 1 - No
Part 2 -
* Patents
* Trademarks
* Licenses

Question 8

What about leases are they part of PP&E?

Answer 8

No, both operating and finance leases under ASC 842 are classified separately on the balance sheet.