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AUDIT PROGRAM

CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
AUDIT OBJECTIVES
To determine whether:
A.

B.
C.

D.

E.

F.

G.
H.

Property, plant and equipment represent all tangible


assets owned that are used in the entity's operations
and they are properly recorded at cost on a consistent
basis.
Additions to property, plant and equipment during the
audit period are proper capital charges and represent
all actual physical property installed or constructed.
The costs and related accumulated depreciation,
depletion and amortization amounts applicable to all
retirements, abandonments, property no longer in
service and dispositions have been properly removed
from the accounts.
Accumulated depreciation, depletion and amortization
accounts are reasonable, considering the expected
useful lives of the property units and expected net
salvage values.
The recorded net investment in property, plant and
equipment can reasonably be expected to be realized
and any impairment thereto has been adequately
accounted for.
Property, plant and equipment and the related
accumulated depreciation, depletion, amortization,
revaluation, gains and losses on disposal are properly
described and classified and adequate disclosure as
required under Fourth and Fifth Schedule to the
Companies
Ordinance,
1984,
International
Accounting Standard 16, 20, 21 and 36 (including
disclosures of lien and encumbrances and assets held
with third party) with respect to these amounts have
been made.
The provision for depreciation, depletion and
amortization of all property, plant and equipment has
been properly recorded on a consistent basis.
All gains or losses due to property, plant and
equipment dispositions have been properly recorded.

Page: 1/11

By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures

SUBSTANTIVE PROCEDURES
1. Physical Verification
1.1
1.2

1.3

1.4

1.5

1.6

Tour the plant facilities before physical verification


preferably atleast 15 days earlier to the yearend/inventory observation date.
Observe the taking of physical inventories of selected
property categories, noting the adequacy of the client's
procedures and the condition of the property items.
Consider using Form Inventory Observation
Checklist.
Prepare a summary memorandum describing the basis
for selecting locations observed, the procedures
followed during the observations and the principal
observations.
Conclude as to the effectiveness of the methods of
inventory-taking and the measure of reliance that may
be placed on the client's representations about the
quantities and physical condition of the property
items.
Review the reconciliation of the physical inventory to
the general ledger balances for property, plant and
equipment. Determine whether reconciling items have
been properly accounted for.
Through discussions with appropriate client
personnel, determine whether idle, under-utilized,
poorly performing or obsolete property exists.
Determine whether, and on what basis, the client has
made appropriate write downs for any such items and
whether any additional write downs should be
recorded to state them at their net realizable value.

2. Overall Analytical Review


2.1

Obtain roll forward schedules of property cost and


accumulated depreciation. Foot and trace ending
balances to the lead schedule. Tie the additions,
retirements and depreciation provision for the year to
supporting schedules. Tie beginning balances to prior
year working papers.
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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
2.2
2.3

2.4

2.5

2.6

2.7
2.8
2.9

Reconcile selected period-end property accounts with


the subsidiary records.
Compare the balance of each significant property,
plant and equipment account with the comparable
balance for the preceding period. Consider the
reasonableness of differences in the light of budgeted
capital expenditure, recent acquisitions, disposals of
assets, new product lines, discontinuance of products,
etc. Scope:
(
)
Compare the balance of each significant maintenance
and repairs account with the budgeted amount and the
balance for the preceding audit period. Investigate
significant fluctuations for possible amounts expensed
that should have been capitalized or amounts
capitalized that should have been expensed.
Compare the actual cost recorded for additions,
individual work orders with the budget or authorized
amounts. Investigate deviations and determine
whether excess expenditures were authorized and
approved.
Have the client prepare a summary analysis of the
activity in each significant property and accumulated
depreciation account for the current period. The
schedules should include the following for each GL
account:
i) Account description;
ii) Beginning and ending balance;
iii) Total additions and deletions made during the
year;
iv) Transfers and other adjustments;
v) Method of depreciation; and
vi) Range of useful lives used in determination
of depreciation.
Ensure that the components of fixed assets register are
at the minimum corresponds with the requirement of
TR-6 of ICAP.
Ensure that the assets of the Company are completely
insured and inquire the basis of insurance coverage,
e.g. at cost, book value or replacement cost.
Compare the book value of assets with the sum
insured and determine any over / under insured
amount.
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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
2.10

Ensure that inter-branch transfers are accurately


eliminated in consolidated accounts both for fixed
assets cost and depreciation.

3. Additions
3.1
3.2
3.3

3.4

3.5

3.6

3.7

3.8
3.9

For major property additions, obtain a listing of


additions over Rs. __________. Review invoice
support for all additions over Rs. __________.
Observe all additions over Rs. __________. Relate
any large/unusual additions to approval in minutes.
Scan the supporting subsidiary ledgers and other
similar records to ensure that all the additions over a
listing scope are properly included in property, plant
and equipment. Review invoice and other supports for
all additions over Rs. __________.
Examine critical forms and documents supporting the
additions like in case of real estate additions, examine
the deed, title abstract etc., or in case of vehicles
examine registration documents.
In case of imported plant and machinery, examine the
bill of lading, LCs, landed cost sheet for the
components of cost and other documentation as an
evidential matter.
In case of an imported asset, ensure that purchase
price includes only the C&F value, import duties,
non-refundable purchase taxes and any directly
attributable cost to bringing the assets to its working
conditions. Also ensure that any trade discounts and
rebates are deducted therefrom.
Ensure that all the additions over limit specified by
SECP are properly approved by the Board of
Directors and cover such approval in covering letter
as a condition for signature of auditors report.
Ensure that start-up and pre-production costs have not
been added to the cost of an asset unless it is
necessary to bring the assets to its working condition.
In case of a self-constructed asset, ensure that internal
profits are eliminated at arriving at such cost. Any
cost of abnormal amount of wasted material, labour
and other production overheads are excluded from the
cost of asset.
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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
3.10

3.11
3.12

3.13

3.14

Trace the cost of the individual addition to the


suppliers invoice and to a counterfoil of a cheque.
Also note whether the description on the invoice is of
an item that should be capitalized under the
companys accounting policies and relate to the
companys business. Review capital expending budget
or other authorization approval or note approval by
the appropriate level of authority. Scope (addition >
___ )
Discuss with appropriate client personnel the assets
addition approval process and prepare system notes.
Check that the description of asset indicated in listing
provided for property additions appear to be in
accordance with the capitalization policy of the
company.
Obtain fixed assets register from the management and
trace all significant additions made during the year.
Also check that the addition to fixed assets register is
made whether on an individual basis or as a bundle
asset.
For capitalization of exchange loss on principal of
loan the proceeds of which were utilized to purchase
the fixed asset, check workings and see that it is in
accordance with Fourth Schedule of the Companies
Ordinance, 1984.

4. Deletions
4.1

4.2
4.3

4.4

Obtain a listing of all trade-ins, sales or other asset


dispositions over Rs.__________ , indicating the
accounting treatment for each, and review propriety of
accounting. Inquire if there are any unrecorded
retirements.
Foot schedule and tie gain/loss on disposition to lead
schedule.
Examine cash receipts for all retirements over Rs.
__________. Determine that proper cost and
accumulated depreciation were removed from the
books.
For material disposals (Rs.__________ ), determine
that proper authorization to dispose was obtained.
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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
4.5
4.6

4.7
4.8
4.9
4.10
4.11
4.12

4.13

Obtain a copy of Boards approval for disposals or


cover in covering letter as a condition for signature of
auditors report.
Examine and scan the relevant supporting subsidiary
ledger or other similar records to ensure that all
dispositions over a listing scope are properly included
in the disposition schedule.
Obtain listings of any abandoned assets or any assets
destroyed during the year.
Inquire management as to any unrecorded retirements.
Review miscellaneous revenue account for proceeds
from the sale of property items.
Investigate reduction in insurance coverage to
determine if these are related to property dispositions.
Tie the cost total to the summary analysis and the
totals for accumulated depreciation, depletion and
amortization.
For significant disposition, review the supporting
subsidiary records and determine whether the cost
basis, accumulated depreciation are properly removed
from the records.
Inquire about any related party sales and cross refer
the disposition with transaction with related parties.

5. Depreciation
5.1

5.2
5.3

Examine the Companys procedures for reviewing the


useful life and carrying value of property, plant and
equipment and note down any action taken by the
management for change in the estimate of the useful
life of the asset and carrying value. Also check any
impairment in the value of assets.
Have client prepare a predictive test of depreciation
expense. Compare to actual and investigate significant
differences. Compare expense to prior year.
As per requirement of TR-11 of ICAP, ensure that the
rate of depreciation of seasonal nature assets is
determined by taking into account the useful life
based on such operations and such rate / amount of
depreciation is not adjusted to commensurate with the
length of seasonal operations in an accounting period.
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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
5.4

5.5

5.6

5.7
5.8
5.9

5.10
5.11

5.12

Compare the provision for depreciation, depletion and


amortization, by class of property, with comparable
amounts for prior periods and with budgeted amounts
for the current period. Investigate significant or
unusual fluctuations after considering the effects of
additions, retirements and fully depreciated assets.
Compare the ratio of the provision for depreciation,
depletion and amortization to total cost of property,
plant and equipment with comparable ratios for prior
periods and with industry averages. Investigate
significant or unusual fluctuations.
Discuss with appropriate client personnel the
accounting policies that affect accumulated
depreciation, depletion and amortization. Consider the
acceptability of the stated policies. Evaluate any
changes in policies as to whether they constitute a
change in accounting principles or otherwise require
disclosure in the financial statements.
Consider the reasons for any changes and determine
whether the revised estimates are reasonable.
Evaluate whether existing policies accomplish the
objective of allocating property costs equitably over
their remaining useful lives.
Have the client prepare a summary analysis of activity
in each significant accumulated depreciation,
depletion and amortization account for the current
period. Verify the clerical accuracy of the analysis.
Trace beginning balances to the working papers for
the prior period and tie ending balances to the general
ledger control accounts.
Cross-reference the provisions for depreciation,
depletion and amortization to the appropriate lead
schedules and ensure that allocations of provisions
between cost of sales and operating expenses are
reasonable and consistent in relation to the preceding
period. Also obtained/enquire into basis of allocation
to determine its adequacy.
Relate any accumulated depreciation, depletion or
amortization removed from the accounts during the
period to tests of property dispositions.

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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
5.13

5.14

5.15
5.16

5.17

Compare the balances of accumulated depreciation,


depletion and amortization at the end of the period
with the totals reflected in the subsidiary ledgers or
other supporting records. Examine support for
significant or unusual reconciling items. Scope: (
)
Select sample of property items from the supporting
subsidiary records and test the computation of the
depreciation, depletion or amortization recorded
during the period.
Cross-reference the amount of gains or losses due to
property, plant and equipment dispositions during the
period to tests of property dispositions.
Determine whether the total amount of depreciable
property is represented in the clients depreciation
schedules and ensure that excessive depreciation
expense has not been charged on fully depreciated
assets (in case of straight line depreciation method).
Ensure that rates of depreciation are not in violation of
SBP directives, if applicable.

6. Impairment
6.1

6.2
6.3

6.4

Review and discuss with the management the


procedure for identifying indicator of possible assets
impairment and consider performing test of
impairment and communicating and acting on
decision to dispose off assets.
Determine the reasonableness of management test of
impairment including its estimates of undiscounted
cash flows.
Determine whether any idle under utilized poorly
performing or obsolete property exists and consider
whether client has made appropriate write down of
assets in this regard and assets are carried at their fair
values.
In accordance with the treatment envisaged in ICAP
TR-11, ensure that any abandoned fixed assets or
assets not to resume operations are removed from
operational fixed assets and are recorded separately.

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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures
6.5

6.6

Analytically review the cost center wise sales with the


preceding year sales figures and investigate the
reasons for significant decrease and relate it to the
revenue generating assets of the concerned
department as an indication of any impairment
investigate in detail, the reason thereof.
Consider whether repairs and maintenance
expenditures are of such magnitude that an inquiry
should be made as to the need for write downs of the
related equipment of whether deferred maintenance
has led to deterioration or shortened useful lives of
property.

7. Revaluation
7.1
7.2

7.3
7.4
7.5

Examine the revaluation policy in respect of property,


plant and equipment and ensure that it is being
consistently applied as per requirement of IAS-16.
Obtain a listing of all the assets that have been
revalued, if any, and consider the following:
Reasons for revaluation;
The professional competency and experience
of the valuer;
Significant assumptions made;
Method used;
Date and year of revaluation;
Amount of revaluation; and
Treatment of revaluation surplus / deficit.
Ensure that the revaluation surplus has been kept
separately in accordance with section 235 of the
Companies Ordinance, 1984.
Ensure that revaluation surplus is not applied to set off
or reduce any deficit / loss or added to income / profit.
Ensure that accumulated depreciation of revalued
assets has been restated proportionately with the
change in gross carrying amount so that the carrying
amount of the asset after revaluation equals to its
revalued amount as per the requirement of TR-14 of
ICAP or it has been eliminated against cost (both
methods are allowed by IAS-16).
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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures

8. Borrowing Costs
8.1

8.2

Review the adequacy of policy used for allocation of


borrowing costs/exchange loss and see whether it has
been consistently applied and in case of any
borrowing cost capitalised under allowed alternative
treatment as described in IAS-23, ensure that criteria
for qualifying assets are duly met.
Ensure that the exchange losses are capitalised upto
the date of commercial production only. Further
ensure that exchange loss on principal is capitalized in
accordance with Fourth Schedule of the Companies
Ordinance, 1984.

9. Pledge / Mortgage
9.1
9.2

9.3

Inquire whether any fixed assets have been pledged.


Relate to debt section.
Review the following to check that the assets of the
company are pledged or mortgaged:
Minutes of the meeting of AGM and BOD;
Loan agreements;
Bank confirmation replies;
Confirmation of liabilities;
Register of mortgages and charges;
Certificate of mortgages; and
Legal replies.
Examine Form-10 in case of mortgage of property,
Form-16 in case of any change of particulars of
mortgage and Form-17 in case of release of
mortgages.

Other tests as deemed necessary

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By

Comments/Explanation
s

AUDIT PROGRAM
CLIENT:
PERIOD:

___________________________________________________

SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________

FIXED ASSETS AND DEPRECIATION

Phase/
Level

W/P
Ref.

Procedures

By

Comments/Explanation
s

Management Letter
Prepare management letter points including:
Internal control weaknesses;
Business improvement opportunities;
Legal non-compliance;
Accounting system deficiencies; and
Errors and irregularities not material at the
financial statements level.
Disclosure
Ensure appropriate disclosure in accordance with the
reporting framework and fill relevant portion of
Financial Statement Disclosure Checklist (FSDCL).
Supervision, review and conclusion
1.
2.
3.
4.

Perform Senior review and supervision.


Resolve Senior review points.
Resolve Partner and Manager review points.
Conclude response to the audit objectives.

Audit conclusion
Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at
the beginning of this audit program have been achieved, except as follows:
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________

__________

_____________
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_________

________

AUDIT PROGRAM
CLIENT:
PERIOD:
SUBJECT:
Est.
Hrs
.

K/AP/
1

___________________________________________________
___________________________________________________
FIXED ASSETS AND DEPRECIATION

Phase/
Level

Date:____________

W/P
Ref.

Procedures
Signature

Job Incharge

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By
Manager

Comments/Explanation
s
Partner