Professional Documents
Culture Documents
Chapter Fourteen
Auditing Financing Process: Prepaid Expenses and Property, Plant and Equipment
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Classification Determine propriety of distribution between manufacturing overhead and SG&A expense.
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New Engagement
the auditor has to verify the assets that make up the beginning balance in property, plant and equipment.
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Monthly
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PP&E subledger
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Types of Transactions
Four types of PP&E transactions may occur: 1. Acquisition of capital assets for cash or other nonmonetary considerations. 2. Disposition of capital assets through sale, exchange, retirement, or abandonment. 3. Depreciation of capital assets over their useful economic life. 4. Leasing of capital assets.
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Difficult-to-audit transactions.
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The detailed property, plant and equipment subsidiary ledger usually includes the following information for each capital asset:
1. Description, location, and ID number. 2. Date of acquisition and installed cost. 3. Depreciation methods for book and tax purposes, salvage value and estimated useful life.
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The PP&E records function should be segregated from the general ledger function.
The PP&E records function should be segregated from the custodial function. If a periodic physical inventory of PP&E is taken, the individual responsible for the inventory should be independent of the custodial and record-keeping McGraw-Hill/Irwin functions.
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The auditor must test for permanent impairment of long-lived assets. While IAS requires the comparison of the assets fair value (less costs to sell) and its value in use, this process can be quite difficult. Auditors may look to other sources of information to learn about impairments.
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End of Chapter 14
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