Perform substantive tests of property, plant and equipment, and related revenue and expenses1.
Obtain a summary analysis in changes in property owned and reconcile to ledgers.The auditors may be verify the balances of plant and equipment assets by reference to
the prior year’s audit working papers. In addition to beginning balances, the summary analysis
will show the additions and retirements of plant and equipment during the year under audit.As the audit progresses, the auditors will examine a sample of these additions andretirements. The detailed working papers showing this verification will support and be cross-indexed to the summary analysis worksheet.Before making a detailed analysis of changes in property accounts during the year, theauditors will want to be sure the amounts in the subsidiary ledgers agree in total with thebalances in the controlling accounts. Reconciliation of the subsidiary ledgers with thecontrolling accounts can be performed very quickly with the use of generalized audit software.2.
Vouch additions property, plant, and equipment during the year.The vouching of additions to the property, plant and equipment accounts during theperiod under audit is one of the most important substantive tests. The extent of the vouching
is dependent upon the auditors’ assessment of control risk for the existence and valuation of
plant and equipment. The vouching process utilizes a working paper analysis of the generalledger controlling accounts and includes the tracing of the entries trough the journals tooriginal documents, such as contracts, deeds, construction work orders, invoices, canceledchecks, and authorization by appropriate individuals.The specific steps to be taken in investigati
ng the year’s addition usually will include
Review changes during the year in construction in progress and examinesupporting work orders, both incomplete and closed.b.
Trace transfers from the Construction in Progress account to the propertyaccounts, observing propriety of classification. Determine that all completed itemshave been transferred.c.
On a test basis, vouch purchases of plant property, and equipment to invoices,deeds, contracts, or other supporting documents. Recompute extensions,footings, and treatment of discounts. Make certain revenue expenditures werenot improperly capitalized.d.
Investigate all instances in which the actual costs of acquisitions substantiallyexceed authorized amounts. Determine whether such excess expenditures wereanalyzed and approved by appropriate officials.e.
Investigate fully any debits to property, plant, and equipment accounts not arisingfrom acquisition of physical assets.f.
Determine that the total cost of any plant and equipment assets purchased on theinstallment plan is reflected in the asset accounts and that unpaid installments areset up as liabilities. Ascertain that all plant and equipment leases that, in effect,