Substantive Procedures for Property Plant and Equipment

Property Plant and Equipment 1. EXISTENCE AND OCCURRENCE O: PPE in the balance sheet physically exists. Addition (purchased, constructed, leased) and disposal (retired) P: 

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Reconcile summary of PPE and analysis of Accumulated depreciation with Ledger o Beginning: Prior working paper (must agree with the ledger balance, sub and gen) o Addition and disposals: During audit o Audit adjustment is posted in the controlling account Physical Inspection of major acquisition of PPE o Appropriate if appears that there’s weakness in the PPE IC

2. COMPLETENESS O: PPE include capitalizable costs and no capitalizable costs are expensed P: 

Vouch additions and investigate disposal o Test basis o Addition  Purchased  Vendor’s invoice  Freight bills  Constructed  Material requisitions  Labor time ticket  Recomputation of overhead  Capitalized interests o Disposal  Remittance advise  Validated deposit slips  Bank statement o Examine minutes of the meetings of BOD o Purchase and Sale Agreements  Indebtedness, Contingent liabilities and Restrictions

3. RIGHTS AND OWNERSHIP O: That the company has legal title or equivalent ownership rights to PPE in BS and related lease obligations of CAPITALIZED leased assets are recognized P: 

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Examine evidence of legal ownership of PPE o Deeds o Transfer certificate of title o Insurance policy o Property tax bills o Operating lease – confirm from 3rd party o Capital or Finance lease – lease contracts  Recompute minimum lease payments  Appropriate capitalization rate o Machinery and equipment – purchase invoice and contract of sale o Cars, trucks and delivery equipment – certificates of title and registration documents Review rental revenue from PPE owned by client and leased to others o Account for all available rental space (vacant vs occupied by lessees) o Obtain floor plan and copies of lease contract o Rental revenue account versus lease agreement and cash records

4. VALUATION AND ALLOCATION O: Whether the PPE are stated at cost and allowances for depreciation and depletion are computed using an acceptable and consistent method P: 

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Analyse repair and maintenance account o Capitalization of extraordinary repairs o Accuracy of repair and maintenance expenses Investigate status of PPE o Dismantled and unsuitable for operation – written down to NRV and excluded from PPE o Temporarily idle – need not be reclassified and still should be depreciated Test client’s computation of depreciation Analytical procedures

5. PRESENTATION AND DISCLOSURE O: Whether the PPE are properly classified in the BS and relevant disclosures are adequate P:   

Balance shown by major class or in total Accumulated depreciation shown in major class or in total Required disclosures o Basis of valuation o Property pledged to secure loans – inquire of legal counsel and bank confirmation for evidence of pledging. The extent of which the PPE have been pledged as security. o Property not in current use