You are on page 1of 17

The Audit Experience AS/2

Performance SupportPPECommon Substantive Procedures


The following performance support details key points and procedures that may need to be performed with regard to the Property, Plant & Equipment (PPE) Model Audit Program (MAP). Common substantive procedures to address the risks of material misstatement in the PPE MAP are displayed with additional guidance on certain procedures you may be required to perform. This performance support provides information to help you perform some of the substantive procedures in addressing the risks of material misstatement in PPE. This performance support only provides information on some common substantive procedures and does not address all substantive procedures to address PPE risks or other portions of the PPE MAP. Also, the substantive procedures may differ based upon the entity under audit and the risks of material misstatement identified. For further information, refer to Performance SupportUsing the Model Audit Program for any general questions you have on model audit programs, as well as Performance SupportWhat Do I Need to Know When Auditing Property, Plant, and Equipment for items specific to PPE that you may not understand. This performance support includes the following sections. (Click on a link to go to the relevant section within this document). SUBSTANTIVE PROCEDURES HELPFUL TIPS APPENDIX 1DISCLOSURE EXAMPLES SUBSTANTIVE PROCEDURES There are several possible options for testing risks identified in PPE, including: Substantive analytical procedures (SAP) Tests of details (TOD) Combination of the two The decision on whether to address the risks in PPE by SAP, TOD, or a combination of the two is made by the engagement manager or field senior during the planning stage of the audit engagement and documented in working paper 1586 Property - Risk Assessment and Audit Plan (RAAP). Testing procedures need to be followed by you, however if you have any questions or concerns related to a particular test, you should speak to the field senior, audit manager or engagement partner for your audit. For further information, refer to Performance SupportSubstantive Analytical Procedures or to Performance SupportTests of Details. This performance support will now go through some common substantive procedures that arise in the PPE MAP and provide you with more guidance and examples to help you as you start performing these tests. If you are unfamiliar with any of the terms, refer to the Audit Approach Manual (AAM) Glossary.
2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

Description of planned substantive procedures: Obtain the fixed-asset register, and test the reconciliation of totals to the general ledger

Additional comments: The fixed asset register is a listing of all of the entitys assets and this will be provided by the entity. Otherwise, you will need to ask the entity for it. Take the totals from the fixed asset register and agree them to the trial balance and any draft financial statements which the entity may have provided. If there are differences, ask the client to perform a reconciliation. Then, test reconciling items. Check the mathematical accuracy of the fixed asset register. For more information, refer to Performance SupportWhat Do I Need to Know When Auditing PPE You should design and perform SAP following the step-bystep guidance in the Performance SupportSubstantive Analytical Procedures.

Perform SAP to test risks identified in the PPE balances. Develop an expectation of the account balance and compare these to the recorded amounts. Perform TOD on risks identified in PPE by selecting: From the opening net book value (NBV) column of the fixed-asset register Current-period additions Current-period disposals

Your sample for each of these tests should be selected from the fixed asset register provided by the entity or from your observation of the entitys floor depending on the risk of material misstatement identified. The fixed asset register will detail the opening net NBV, additions, and disposals separately so that you can select your sample. For more information, refer to Performance SupportTests of Details. See the AAM Topic 5410 Perform Tests of Details. You should take the totals of each asset class from the current fixed asset register and compare these with the totals from the prior year fixed asset register. You will be able to find this in the prior year audit file. Calculate the difference between the same categories each year to see if there have been any significant fluctuations. For example: Land & Bldg 2012 2011 Diff 15,837,000 20,837,000 5,000,000 Vehicles 2,387,000 2,410,000 23,000

Identify significant fluctuations by category of PPE (i.e., classification of property disclosed in the notes to the financial statements) using analytical techniques, and obtain explanations for unusual variances.

There is no significant fluctuation in the vehicles total, but there is in land and buildings thus you would need to investigate this further.
2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

Description of planned substantive procedures:

Additional comments: You would do this in the same way as investigating differences with a SAP. For further information, refer to Performance SupportSubstantive Analytical Procedures, but the first place to start would be asking entity staff for any explanation that you would then corroborate and document within your working papers.

Perform TOD on risks identified in construction in progress and construction transferred into service during the period by making a selection of construction in progress at the period-end and tracing the recorded costs to appropriate supporting documentation. Test risks related to maintenance expenses and overhead costs, and determine whether some items should have been capitalized.

An entity may have construction in progress if they are in the middle of constructing some assets. This is one of the more complex PPE tests so if a risk has been identified for any construction in progress you should discuss this with your field senior. The field senior may assign the test related to this risk to a more experienced member of the engagement team and thus it is quite possible you will not complete this test.

When a purchase is capitalized, it is included within the fixed asset register as an asset addition. Maintenance expenses and overheads are the costs of running the business and thus should not be capitalized but should be charged to the profit and loss account instead. You should obtain a print out of the entitys maintenance and overhead general ledger accounts. You should perform a TOD by selecting a sample of expenditures to determine: If these are maintenance/overhead costs and thus posted correctly, or The sample includes capital expenditures which should be correctly capitalized within PPE You should consider the entitys capitalization policy when performing the test to address the risk identified. The entity may not capitalize expenditures under a certain limit. This means that you could find low value capital assets within your sample, but as they cost less than the limit, the assets were not capitalized. For example, the entity may have an accounting policy where they do not capitalize anything with a purchase cost of less than 1,000. In your sample, you find a purchase of a new desk, which is an asset that, typically, would be capitalized. As the desk cost 500, it has been posted to maintenance expenses in line with the entitys capitalization policy. Thus, this is not an error in 3

2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

Description of planned substantive procedures:

Additional comments: posting but the entitys accounting policy. You should also perform this test in the other direction to address the risk identified. This means taking a sample of capitalized assets and determining whether: They have been correctly capitalized. They are actually maintenance expenses, or overheads, and should be posted to the profit and loss account instead.

Perform SAP to test risks related to depreciation expense. Develop expectations of the account balance and compare these to the recorded amounts.

SAP is often performed on depreciation balances as you can develop a relatively precise expectation based on depreciation percentages. For example, if computer equipment has a depreciation rate of 33% and an opening balance of 736,000 then you would expect to see a depreciation charge for the year of 242,880 or 33% of 736,000. You could then further refine this expectation removing any disposal or fully depreciated items, and by adding any additions. You should refer to the Performance SupportSubstantive Analytical Procedures for more guidance on how to perform SAP. See the AAM Topic 5200: Perform Substantive Analytical Procedures.

Determine that events have not occurred that might lead to: A reduction in the period over which an asset is being written off A total write-off of an asset (e.g., changes in production rendering some assets obsolete).

In order to determine if there have been any events, then you will need to ask your field senior, entity staff or read minutes of board of directors meetings or industry/national press. Reduction in the period over which an asset is being written off:

This refers to the useful economic life (UEL) which the entity has assigned to that asset. You need to determine whether an event has taken place that would reduce the original UEL of the asset.

For example, if a vehicle has been in an accident, despite being repaired, it may need to be replaced sooner than if it had not been in an accident. Thus an event (the accident) has happened to reduce the period (UEL) over which the asset is being written off (depreciated). A total write off of the asset: If the asset can no longer be used, then it will need to be written off (disposed of).

For example, if the vehicle has been in an accident and cannot


2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

Description of planned substantive procedures:

Additional comments: be repaired, and therefore can no longer be driven, then there must be a total write-off of the asset. Other examples of events could be a fall in the property market, new technological advances, fire/flood damage, or a new regulatory requirement, e.g., Health and Safety legislation.

Asset Impairment: Assess management assumptions regarding impairment calculation and reconsider whether there are impairment indicators.

Addressing risks related to impairment involves a complex test within the PPE MAP. You should discuss this with your field senior to see if you should be completing this test, or if it has been assigned to a more senior member of the engagement team. Here is some more guidance if you are going to perform this test. What do we mean by impairment? By checking to see if an asset has been impaired you are determining:

Is the asset still fit for its purpose? That is, can the asset still perform in the manner for which it was bought? For example, does the machinery still work, is the computer so old it is out of date, does the delivery truck still drive. If the asset no longer works properly, and thus cannot be used by the entity, then it is impaired. Is the assets net book value correct? If the asset were sold today, would it be sold for the net book value listed on the fixed asset register? If it were to lose money in the sale, then it is impaired.

As an auditor you may not be able to judge the above two criteria; therefore, you should discuss the testing procedures with the field senior who may decide to bring in an expert. You need to discuss with the entity what impairment policies and testing they perform to determine whether their assets have not been impaired. You will then need to assess the entitys policies/testing to see if these are in line with your professional judgment and expectations. Market and Fair Value: Agree the price to market source price. Consider significant effects of subsequent events on the fair value measurements. These are complex tests that often require the involvement of valuation experts to address the risks identified appropriately. Discuss with your field senior whether you should be performing these tests, or if they have been assigned to a more senior member of the engagement team. The entity may also have had third party valuations performed on the assets and 5

2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

Description of planned substantive procedures: Test risks related to fair value either by testing managements assumptions, data, and model used in the entitys fair value measurement, or by developing an independent fair value estimate to corroborate the appropriateness of the entitys fair value measurement. Opening NBV Column:

Additional comments: you should check with entity staff to see if any such information is available. If so, you should contact the third party directly to get a copy of the report sent directly to Deloitte. Subsequent events refer to events that have taken place after the period end. Examples of possible events that could affect the fair value of an asset have been detailed above in Impairment Testing.

A potential fraud risk could be that employees are purchasing assets for their own use while the expense is being paid by the entity, e.g., a television or car. To address the risk related to opening balances, you should agree the opening NBV amounts to prior period-end audited amounts. You need to perform physical inspection testing. Your field senior will inform you of this. o When performing a physical inspection test, you should also assess the physical state of the asset at the same time to assess if the useful economic life is appropriate. Current Period Additions: How should you select your sample? You may find that there are several different locations within one asset category, and that each of these locations has additions. So how should you select your sample in this situation? You will need to take into account a number of factors when determining how to select the samples, for example: Whether there are one or more legal entities for which we are providing an audit report Whether the risks of material misstatement are the same for each location Whether the risks of material misstatement are the same for each asset category Stratification of the population If you are uncertain as to how these factors affect the determination of the audit sample(s), speak to engagement manager or field senior. When does an addition become an addition?

2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

When you start your testing to address risks related to additions, how can you be sure that the asset is actually a new addition that is owned by the entity? When does an addition actually become the entitys property and how can you assess that? The entity can record an addition when legal ownership of the asset transfers to the entity. o For example, if the entity purchases a new office building it is when the legal title to that building is in the entitys name, even if payment occurs after or before that happens. This can be more difficult with other types of assets but transfer of ownership is often indicated on the invoice. o For example, the invoice could indicate title transferred on 4 April, or FOB shipping point/ destination When assessing the transfer of ownership with FOB (freight on board) shipping point or destination point, what should you look for? o If the invoice says FOB shipping, then the transfer of ownership should be recognized when the asset has left the shippers warehouse. If it says FOB destination point, then the transfer of ownership should be recognized when the assets reach their destination. For example, if a shipment of the asset was made on 26 June and the terms were FOB shipping point, then the addition should have been recorded on 26 June. If the shipment was FOB destination and the asset did not arrive until 3 July, then the addition should have been recorded on 3 July.

2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

What supporting documentation do you need? When you start to test the risks related to additions how can you be sure that the correct value of the asset is recorded in the general ledger? The entity records the value of the asset based on the invoice value and other costs that bring the asset into use (transport, installation, etc.) or a valuation report. In order for us to test this valuation, we need to agree the value to an invoice or a valuation report depending on how the asset is valued. Normally for buildings, a valuation report would be used. o For example, if the entity purchased a cutting machine during the year for 20,000, you would review the relevant invoice, documenting the invoice number, supplier name, invoice date, and value of the assets in order to verify that the asset is valued correctly. Entities would normally require a capital expenditure approval form for purchase of large assets; however, this varies by entity and, therefore, it is important that you understand the policy in place within the entity. The asset addition would physical exist at the entity location. Our supporting evidence can be obtained through a physical verification of the asset at the entitys location. Current Period Disposals: Assets are disposed in one of two ways; either sold, or scrapped, i.e., thrown away (not sold). Most often assets are disposed and replaced at the same time, and thus disposal, opening balances, and additions testing typically take place at the same time to make the audit work more efficient and effective. When testing the risks related to disposals, you will often select your sample from the disposal column; additionally, you also make a selection from the opening, additions, or ending cost column. If an opening balance or addition selection was not found, you need to determine if it was disposed of and, if so, this needs to be tested. If an addition replaces an asset that was disposed of, you also need to test the related disposal. To test risks related to disposals you should: Check the fixed asset register to determine whether the asset is not included in the period end figures. Agree the disposal to the disposal authorization form. This form should detail the asset being disposed of, whether it is being sold or scrapped, and have an authorization signature. Obtain the total gain/loss schedule from the entity. This should be agreed to the financial statements. Test the sales proceeds Recalculate the gain/loss on disposal and trace the gain/loss to the general ledger account to determine whether it has been included correctly.

2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

Gain or Loss on disposal calculation example: Monetary Value Original purchase cost Accumulated depreciation Net book value Sales proceeds (Loss) on disposal 100,000 (80,000) 20,000 15,000 (5,000)

Check the original purchase cost against the fixed asset register and the original invoice. This will also show the purchase date so that you can recalculate the accumulated depreciation. As above, recalculate the accumulated depreciation and agree it to the entitys depreciation policy. Also, agree this figure to the fixed asset register. Agree the sales price to the sales invoice and trace the payment from the remittance advice to the bank statement.

If the sales proceeds were 20,000 then there would be no gain or loss on disposal. If the sales proceeds were 25,000 then there would be a 5,000 gain on disposal. If sold, agree the price to the sales invoice, trace the payment from the remittance to the bank statement. If scrapped, recalculate the disposal entry. Whilst there are no sale proceeds, it is important to check that correct cost and accumulated depreciation figures have been used. You should agree these to the fixed asset register. The accumulated depreciation figure will change depending on entity policy; does the entity charge a full year of depreciation, no depreciation, or apportioned depreciation in the year of disposal. This will be disclosed in the entitys accounting policies within the financial statements. Check that the disposal is recorded in the correct period. Check the date the asset was sold (on the sales invoice) or scrapped (the disposal journal entry) and see if it happened in the period being audited. If so then it is recorded correctly. If not, discuss this with your field senior. Check that the disposal is properly classified within the financial statements. You need to check that it has been included in the fixed asset movement schedule (also referred to as continuity schedule or rollforward schedule) as a disposal, that this agrees to the fixed asset register and your working papers. If there are errors found in the fixed asset movement schedule, a revised schedule should be requested from the client.

2000-2012 Deloitte Global Services LimitedPartners in Learning

The Audit Experience AS/2

SUBSTANTIVE PROCEDURES CONTINUED Description of planned substantive testing procedures to be performed: Test the risks related to capital (finance) leases Obtain schedules of capital (finance) leases, and test the reconciliation of opening and closing balances as well as movements of the period to the general ledger. Assess whether all lease contracts have been treated in accordance with the applicable accounting framework. Perform TOD on capital (finance) leases by making a selection of items still held at period end from the beginning balances and current-period additions columns. Test items leased as of the balance-sheet date. Test items that were no longer leased as of the balance-sheet date. Consider requesting positive confirmation of material lease (finance) contracts. Consider requesting positive confirmation of material insurance contracts Rollforward procedures for account balance tested before period end Inquire and consider any audit evidence that comes to our attention regarding any significant additions, disposals, replacements, revaluations, or fair value adjustments in the period from the interim date to the balance sheet date. Perform SAP to test the risk related to the account balance change in the intervening period (i.e., from the interim test date to the balance sheet date). Develop expectations of the account balance change in the intervening period and compare these to the recorded amounts. Perform TOD on account balance change in the intervening period (i.e., from the
2000-2012 Deloitte Global Services LimitedPartners in Learning

Additional comments: Addressing risks related to capital leases involves a complex test and you should discuss with your field senior whether you are to perform this test. You should inquire with the entity during your additions testing whether any new capital leases have been undertaken by the entity. You should also make similar inquiries during your testing of disposal risks whether any capital leases have ended during the period under audit. You should pass this information on to your field senior and ask what steps you should do from there.

On some audits, there may have already been an interim audit visit, where members of the engagement team will have started the audit work to address risks identified in PPE. As these visits happen before the year-end, testing cannot cover the whole year, and thus rollforward procedures need to be performed. Rollforward procedures relate to testing the identified risk between the interim visit and the year-end and extend a conclusion from interim dates to the balance sheet date (e.g., testing done in September for a December year-end). For more information, consult your field senior to determine the nature and extent of work to be performed. See below for further information on rollforward procedures. 10

The Audit Experience AS/2

Description of planned substantive testing procedures to be performed: interim test date to the balance sheet date) by examining activity within the account balance to address the risks identified. Presentation and disclosure: Test the risks identified for presentation and disclosure

Additional comments:

Within the financial statements there are several disclosures relating to PPE: Balance sheet disclosure of the net book value of all the PPE held by the entity Cash flow disclosure of the cash cost of any additions and the cash profit/loss on any disposals. Note disclosure of the summarization schedule, depreciation policy detailing the percentages, depreciation charge for the year posted to the income statement, related taxation charges/savings. All of these disclosures need to be checked as part of our audit work and we should tie them into our working papers. Below you will find annotated examples of what you should be checking.

Evaluate whether the disclosure about fair value made by the entity conform with the applicable accounting framework

Any disclosures in the financial statements on fair value need to be checked to determine whether the disclosure follows the applicable accounting standards. As already discussed, the entity may follow several different accounting standards: Local GAAP Overseas GAAP if reporting to a different country IFRS Industry regulations

To complete this testing you will need to have knowledge of all of the applicable accounting standards and thus should discuss this test with your field senior.

Rollforward Procedures:
2000-2012 Deloitte Global Services LimitedPartners in Learning

11

The Audit Experience AS/2

If you did not perform the interim procedures, you will need to review the work that has been performed at the interim visit to start with. This will bring you up-to-date with the procedures that were performed and with what is outstanding for you to complete to address the risks identified in PPE. The interim work should document the entity staff contact for you to meet with and ask whether any changes have happened between the interim visit and now. As discussed above you will need to inquire if any events have taken place that could affect the market or fair value of the assets or if any impairment has taken place. You should also review the final fixed asset register (which will be provided by the entity) and see if there have been significant additions/disposals/replacements/revaluations since the interim visit. You will have to use your professional judgment with regard to what is or is not significant, but you can discuss this with your field senior who will give you more guidance. For example, if 50% of the periods total additions/disposals etc. take place after interim then this is a significant number and you would ask why so many happened in a compact period of time. There may also be a monetary significance involved. If only one asset is replaced but this asset is worth 5 million then you would also need to investigate this replacement further, in the same way detailed in the TOD testing in the steps above. You should also ask the entity staff if there is anything that they consider to be significant. SAP Rollforward Procedures: The basic principles of a SAP do not change whether it is a rollforward SAP or not. You should refer to the Performance SupportSubstantive Analytical Procedures for further guidance as this will not be covered here. Instead of developing an expectation of the balance being tested to address certain risks over the whole period under audit, you would only base your expectation on the time between the interim audit visit and the period end. For example, if the year-end is 31 December and the interim tested PPE up to 30 September, then the rollforward expectation should be based on 1 October to 31 December, i.e., the last three months of the year. You could use the interim SAP procedure to develop your expectations but you do not need to include the months already tested at interim. You should, however, compare the explanations you receive for any balances that fall outside of threshold with those documented at interim. This should highlight any inconsistencies in the explanations. For example, if the interim testing found that the entity had replaced all delivery vehicles then you would not expect to see any more vehicle additions in the rollforward.

2000-2012 Deloitte Global Services LimitedPartners in Learning

12

The Audit Experience AS/2

TOD Rollforward Procedures: The basic principles of a TOD do not change whether it is a rollforward TOD or not. You should refer to the Performance SupportTests of Details for further guidance as this will not be recovered here. When calculating your sample size for TOD you would take your balance as the total between the interim date and the period end date. For example, if the year-end is 31 December and the interim tested PPE up to 30 September, then the rollforward sample should be based on 1 October to 31 December, i.e., the last three months of the year. Therefore, you will have, effectively, two different samples, one at interim, and one at final. HELPFUL TIPS Additional tips when auditing risks of material misstatement identified for PPE to be more efficient and effective: Determine whether all account balances, opening balances, depreciation, and net book value amounts agree to the financial statements. Keep the risks of material misstatement and performance materiality in mind when addressing PPE risks. o You will need this for performing procedures to test the risks identified and it will give you an understanding of how significant a balance is, with regard to how material it is. The more material the balance is, then the more risk that there could be a material misstatement that could result in a DTTL member firm issuing an inappropriate opinion. Significant fluctuations in the PPE account balances should be documented in the leadsheet, or in a summary memo. Check with your field senior on where they would like this documented. o You need to look at the overall picture of PPEnot just the transactions that make up this account balance. By looking into any significant fluctuations, you can understand the commercial rationale behind the decisions. o For example, why has PPE doubled from 542,000 to 1 million? You may have successfully completed TOD and so have gained audit evidence that the risks related to additions and disposals have been addressed but you do not know the reason for the overall increase. This could be because the entity has bought a fleet of delivery vehicles rather than using a haulage company, or because the entity has now bought some office buildings rather than leasing them. Consider using AS/2 templates for testing risks identified in PPE. o DTTL methodology has been used to create these templates, thus by following them your procedures will be in line with DTTL procedures. o The rest of the engagement team will be familiar with these templates and will therefore be able to give you guidance and assistance in using them.

2000-2012 Deloitte Global Services LimitedPartners in Learning

13

The Audit Experience AS/2

o It will be easier for your field senior to review your work if it is in a familiar template and thus your work will be clearer and better documented. Obtain entity prepared documents electronically, where possible, for inclusion in the audit documentation. o This will reduce the amount of manual working papers in the file, thus reducing the likelihood of any being lost. It is also more environmentally friendly. o You will be able to document your audit procedures directly on the entity prepared documents and perform further analysis more easily.

2000-2012 Deloitte Global Services LimitedPartners in Learning

14

The Audit Experience AS/2

APPENDIX 1DISCLOSURE EXAMPLES Statement of Financial Position Example Note As At 31 December 2012 000 1,015
Check these amounts to your leadsheet in the AS/2 file.

As At 31 December 2011 000 542

Property, plant and equipment


Agree the PPE note in the financial statements amounts to the amount on the statement of financial position (as shown here) and to your working papers.

Agree this amount to the prior year signed financial statements.

Statement of Cash Flows Example


The cash flow details the actual cash paid out in the year. This is the cost of additions in the year that have been paid for; only the amount that has left the entitys bank account will be disclosed here. Keep this in mind when you agree this balance to your working papers as it may therefore not tie in directly to the additions stated in the fixed asset register and fixed asset movement schedule. Ask the entity for their cash flow workings that will have reconciliation between total additions in the period under audit and the cash flow disclosure. Talk to your field senior first as someone else may have tested the cash flow statement already.

Notes

Year ended 31-Dec 2012 000

Year ended 31-Dec 2011 000

Investing activities Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash from investing activities (838) 265 (573) (134) 87 (47)

As the cash flow only discloses actual cash paid and received, this balance is the cash that the entity has received for its disposals. This will not include any assets that were scrapped and thus may not agree to your working papers or tie in directly to the disposals stated in the fixed asset register and fixed asset movement schedule. Ask the entity for their cash flow workings that will have reconciliation between total disposals in the period under audit and the cash flow disclosure. Depreciation related to assets is reflected as non-cash activity in the operating activities section of the Statement of Cash Flows. Talk to your field senior first as someone else may have tested the cash flow statement already.

2000-2012 Deloitte Global Services LimitedPartners in Learning

15

The Audit Experience AS/2

Property, Plant, and Equipment Accounting Policy Disclosure Example Property, plant, and equipment is stated at cost less accumulated depreciation and any recognized impairment loss. Expenditures for maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the useful lives of the related assets. A full year of depreciation is charged in the year of addition, none in the year of disposal. The assigned useful lives are currently as follows: Furniture and fittings Office equipment Computer equipment 10 years or remainder of premises lease 4 to 5 years or remainder of premises lease 4 years

Do these depreciation rates agree to those actually used by the entity? You should check the rates to your working papers where you performed the tests on depreciation as detailed above. The depreciation rates are also often stated on the fixed asset register and so you should agree the disclosure to the fixed asset register.

2000-2012 Deloitte Global Services LimitedPartners in Learning

16

The Audit Experience AS/2

Property, Plant, and Equipment Note Disclosure Example


Are these the correct fixed asset classes? Agree the fixed asset classes to those needed under the applicable regulatory requirements. Also, agree the classes to those in the entitys fixed asset register, for example, below there is no vehicle or land & buildings asset classes. Is this in line with your working papers and the fixed asset register?

Furniture Computer and and office fittings equipment 000 000 Cost or valuation At 1 Jan 2012 Additions Disposals/transfers At 31 December 2012 Accumulated Depreciation At 1 January 2012 Charge for the year Disposals/transfers At 31 December 2012 Net book values At 31 December 2012 At 31 December 2011 2,525 723 (100) 3,148 2,587 196 (50) 2,733

Total 000 5,112 919 (150) 5,881

Does this table add up? Recalculate each row and each column.

Do all of the numbers (cost, accumulated depreciations and NBV) agree to our leadsheet and thus the numbers we have audited? Agree all of these numbers to your working papers.

2,254 181 (50) 2,385

2,316 190 (25) 2,481

4,570 371 (75) 4,866


Agree the Net Book Values (NBV) to the statement of financial position disclosure as well as to your leadsheets for both the current and the prior year.

763 271

252 271

1,015 542

Note that this performance support does not replace the AAM. It should be read in conjunction with the applicable AAM topics, as the manual states the requirements of our audit approach and provides further guidance.

2000-2012 Deloitte Global Services LimitedPartners in Learning

17