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Substantive Procedure For Noncurrent Assets

The document outlines substantive procedures for auditing noncurrent assets, including verification of asset ownership, revaluation, depreciation, and additions/disposals. It details steps for inventory counting before, during, and after the count, as well as procedures for positive receivable circularization. Each section emphasizes the importance of accuracy, completeness, and compliance with accounting standards.

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26 views3 pages

Substantive Procedure For Noncurrent Assets

The document outlines substantive procedures for auditing noncurrent assets, including verification of asset ownership, revaluation, depreciation, and additions/disposals. It details steps for inventory counting before, during, and after the count, as well as procedures for positive receivable circularization. Each section emphasizes the importance of accuracy, completeness, and compliance with accounting standards.

Uploaded by

rubbicon jeep
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.

Obtain noncurrent assets register, cast to insure arithmetical accuracy and agree the
total to amount included in draft financial statement, trial balance/general ledger.

2. Inspect assets usage and condition to identify any sign of impairment. Verifies
valuation.
3. Obtain a breakdown of repair and maintenance cost, to identify any expenditure of
capital nature and ensure it has been included in financial statement rather than
statement of profit or loss.
4. Select a sample of assets from register and inspect its supplier invoice, registration
documents and title deeds to verify its ownership. Verifies rights and obligation.
5. Select a sample of assets physically visible at premises of p co and inspect noncurrent
register to ensure it has been recorded appropriately. Verifies completeness.
6. Select a sample of assets from noncurrent assets register and carry out physical
inspection at premises of p co to verify existence.

Substantive procedure for noncurrent assets revaluation

1. Agree the revalued amount to revaluation statement provided by independent valuer and to
amount included in financial statement.
2. Recalculate the revaluation adjustment made and agree to the amount included in
revaluation surplus recorded under other comprehensive income.
3. Recalculate the deprecation charge for the revalued assets and ensure it is based on the
current revalued amount.
4. Review the revaluation report and consider the other assets falling under the same category
have been revalued and is in accordance to IAS 16 PPE.
5. Consider the competency and capability of valuator by enquiry their professional
qualification, membership of professional body and any past experience of valuing such type
of assets.

Substantive procedure for noncurrent assets depreciation

1. Review the capital expenditure budget for next few years and ensure the expected useful life
of an assets aligns with companies plan to replace the assets.
2. Consider the profit/loss on disposal of noncurrent assets to assess the reasonableness of
depreciation policy. (if there is reasonable depreciation policy then there should not be
significant profit/loss during the disposal of assets.)
3. Recalculate the depreciation charge for revalued assets to ensure it on based on the revalued
carrying amount.
4. Compare the depreciation policy, rate and method to other company having similar assets to
evaluate its reasonableness.
5. Inspect the disclosure of depreciation policy, rate and method on the draft financial statement
and compare with prior year to ensure its consistency.

Substantive procedure for noncurrent assets addition/disposal


Substantive procedure for noncurrent assets addition/disposal

1. Obtain a schedule of addition, cast the list and agree the total cost to suppliers invoice.
Ensure the recorded cost include cash amount paid plus trade in allowance.
2. Physically inspect the sample of addition and confirm the registration number of vehicles
agrees with the record on noncurrent assets registration.
3. Inspect the noncurrent assets registration to confirm 20 new vehicles were added and 20
old were removed.
4. Obtain the schedule of disposal, cast the list and agree that the total have been removed
from non current assets register.
5. Select a sample of disposal and agree the proceed to supporting document documents
such as sundry sales invoice.
6. Recalculate the accumulate depreciation for disposed off assets and ensure it has been
removed from accumulate depreciation carry forward.
7. Recalculate the profit or loss for the disposal and agree to the figure recorded on trial
balance or to the statement of profit or loss.
8. Recalculate the depreciation charge for the year and ensure it is based on the cost of old
vehicle till 31 dec 20x5 and after the period it is based on the cost of new assets.

Substantive procedure for inventory before count


1. Contact the client to obtain inventory count instruction, to understand how
inventory count will be undertaken and assess the effectiveness of inventory count
process.
2. Review the working papers of previous auditor to understand the inventory
counting process and identify any issues that should be accounted during this year.
3. Consider the use of an expert to assess the valuation of inventory being counted.
4. Ascertain whether any inventory is held at third party warehouse. If possible make
arrangement to visit the third party site.
5. Obtain the list of location where inventory is kept. Select which location audit
team will visit, location having high value inventory or having poor control should
be selected.
Substantive procedure for inventory during the count
1. Select an item of inventory listed on inventory count sheet and carry out physical
inspection on warehouse to verify its existence.
2. Select an item of inventory from warehouse and ensure it has been included on
inventory count sheet to verify completeness.
3. Enquire with management whether inventory held on behalf of other has been
segregated and recorded separately.
4. Inspect the inventory being counted, to identify any damage or obsolescence that
could affect the net present value of inventory.
5. Attend the inventory count at third party warehouse to verify completeness and
existence.
Substantive procedure for final inventory count
1. Obtain the list of inventories of x product, cast and agree the total to recorded cost
of 2.4m on inventory count record.
2. Agree the quantity of inventory shown as held at year end to year end inventory
count record.
3. Select a sample of inventory (WIP, FINISHED GOODS), obtain its relevant cost
sheet and agree the cost of raw material to resent purchase invoice, Laboure cost
to payroll record or time sheet and ensure overheads allocated are of production
nature.
4. Select a sample of WIP and ensure that the percentage of completion recorded
during the inventory count align with the work in progress register.
5. Select a sample of inventory and review its post yearend sales record

Positive receivable circularization


1. Obtain consent from client to perform circularization.
2. Obtain a list of trade receivable cast and agree to trade receivable ledger
control account.
3. Select a sample of trade receivable and ensure it consist of null, old and larger
trade receivable balance.
4. Receivable circularization should be prepared on client letter head signed by an
appropriate staff of a client such as finance director. Requesting confirmation
of receivable balance and response to be made directly to auditor’s office by
prepaid envelope.
5. The confirmed balance should be agreed to client record and for any difference
arises due to cash/goods in transit should be investigate further.
6. For no response, auditor should perform alternative audit procedure such as
detailed cash testing, inspecting GDN, sales invoice relating to the receivable
balance.

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