AUDITEE: PROPERTY, PLANT, AND EQUIPMENT (PPE)

I.

AUDIT OBJECTIVE
Determine whether or not adequate controls exist for the following:
Existence of property, plant, and equipment
All PPE transactions are reflected in this periods balance
The client owns the PPE
PPE assets are recorded in accordance with the generally accepted
accounting principles
PPE assets are properly presented and footnote disclosures (relating to
depreciation methods, collateralized assets, commitments of assets, lease
terms) are adequate

II. AUDIT RISK

PPE may include assets that should have been derecognized following sale,
other transfer of rights or abandonment.
Depreciation may have been incorrectly calculated on account of factors such
as:
o Mechanical error; or
o Incorrect application of accounting policy; or
o Inappropriate assessment of remaining useful life; or
o Inappropriate assessment of residual value; or
o Incorrect classification of the asset.
Where a valuation model is followed - carrying amount may not reflect fair
value due to factors including:
o Failure to update valuations for current circumstances; or
o Use of invalid assumptions or data, etc., or
o Valuations not performed by competent personnel.
Recording of an asset purchased, which in effect has not actually been
received by the entity at all.
Removal of an asset paid for by the entity or use of an asset of the entity for
the benefit of a person other than the entity.
Lack of complete and timely verification and reconciliations of assets.
Inadequate physical safeguards over PPE.
The asset is intentionally sold below fair market value.
III. AUDIT PROGRAM

Audit/Control
Objectives
1. Existence
1.1 Recorded
assets represent
those in use at

Audit Procedures

Documentati
on

of property, plant, and equipment

1. Vouch a sample from
accounting records to
underlying documentation.

Audit
Note
d

Issue
s

W/P Ref

the year-end

2. Vouch a sample from

the accounting records to
the physical assets.

1.2 Additions
represent assets
1. Test cutoff. Examine
acquired in the
documents relating to
year and
acquisition and disposal to
disposals
determine proper
represent assets
recording period.
sold or scrapped
in the year
2. All PPE transactions are reflected in this periods balance
1. Perform analytical
procedures.
2.1 All additions 2. Reconcile subsidiary
and disposals
and general ledger.
that occurred in
a. Prepare Schedule of PPE
the year have
assets from subsidiary
been recorded
ledger or client
worksheets for testing.
Include in work papers.
1. Analyze repairs and
maintenance.
a. Evaluate debits in
repairs and maintenance
2.2 All assets in
account to determine
use at the yearproper recording
end are included
(capitalize perhaps?).
in balances
b. Evaluate additions to
PPE to determine proper
recording (non capitalizing
items perhaps?).
3. The client owns the PPE
3.1 The entity
1. Examine titles and lease
has rights to the agreements.
assets
2. Evaluate whether leases
purchased and
are properly recorded as
those recorded
operating and/or capital
at the year-end
leases.
3. Vouch entries in PPE
with payment records to
ascertain ownership.
4. Vouch entries in PPE
with insurance records

(payments to insurers) to
ascertain ownership.
5. Vouch entries in PPE
with property tax records
(assessments and
payments to
governments) to ascertain
ownership.
4. PPE assets are recorded in accordance with the generally accepted
accounting principles
1. Vouch additions and
4.1 Additions
disposals by examining
and disposals
documentation relative to
are correctly
authorization of purchase,
recorded
recording of purchase, PPE
schedules for assets.
4.2 Non-current
1. Test to determine if
assets are
depreciation is recorded
correctly stated
and if a generally
at cost less
accepted method has
accumulated
been consistently applied.
depreciation
5. PPE assets are properly presented and footnote disclosures (relating to
depreciation methods, collateralized assets, commitments of assets, lease terms)
are adequate
5.1 Disclosures
relating to cost,
additions and
disposals,
depreciation
1. Obtain and verify the
policies, useful
financial statements.
lives and assets
2. Examine management
held under
representation letter for
finance leases
information concerning
are adequate
PPE.
and in
accordance with
accounting
standards