8.56 Assertions and Substantiv
8.56 Assertions and Substantive Procedures for Property, Plant,and Equipment (PP&E). Following are the four assertions aboutaccount balances that can be applied to the audit of a company’sPP&E, including assets the company has constructed itself:existence, rights and obligations, completeness, and valuation andallocation. Required: For each of the following substantiveprocedures, (1) cite one assertion most closely related to theevidence the procedure will produce (the primary assertion) and (2)when appropriate, cite one or more other assertions that also arerelated to the evidence the procedure will produce—the secondaryassertion(s). For major amounts charged to PP&E and a sample ofsmaller charges, examine supporting documentation for expenditureamounts, budgetary approvals, and capital work orders. For a sampleof capitalized PP&E, examine construction work orders indetail. For a sample of construction work orders, vouch time andmaterial charges to supporting payroll and material usage records.Review the reasonableness of the hours worked, the workdescription, and the material used. Evaluate the policy andprocedures for allocating overhead to the work orders, andrecalculate their application.Page 374 Determine whethercorresponding retirements of replaced PP&E have occurred andhave been properly entered in the detail records. Select majoradditions for the year and a random sample of other additions, andinspect the physical assets. Vouch a sample of charges in theRepairs account, and determine whether they are proper repairs, notcapital items. Review the useful lives, depreciation methods, andsalvage values for reasonableness. Recalculate depreciation. Studyloan documents for terms and security of loans obtained forpurchase of PP&E. Inspect title documents for automotive andreal estate assets. Analyze the productive economic use of PP&Eto determine whether any other-than- temporary impairment isevident.
Answer:
For major amounts charged to PP&E and a sample of smallercharges, examine supporting documentation for expenditure amounts,budgetary approvals, and capital work orders.
Valuation and existence
For a sample of capitalized PP&E, examine construction workorders in detail.
Valuation
For a sample of construction work orders, vouch time andmaterial charges to supporting payroll and material usage records.Review the reasonableness of the hours worked, the workdescription, and the material used.
Valuation
Evaluate the policy and procedures for allocating overhead tothe work orders and recalculate their application.
Valuation and allocation
Determine whether corresponding retirements of replaced PP&Ehave occurred and have been properly entered in the detailrecords.
Existence
Select major additions for the year and a random sample of otheradditions and inspect the physical assets.
Existence
Vouch a sample of charges in the Repairs account and determinewhether they are proper repairs, not capital items.
Completeness
Review the useful lives, depreciation methods, and salvagevalues for reasonableness. Recalculate depreciation.
Valuation and allocation
Study loan documents for terms and security of loans obtainedfor purchase of PP&E.
Rights and obligations
Inspect title documents for automotive and real estateassets.
Rights and obligations
Analyze the productive economic use of PP&E to determinewhether any other-than-temporary impairment is evident.
Valuation
For major amounts charged to PP&E and a sample of smallercharges, examine supporting documentation for expenditure amounts,budgetary approvals, and capital work orders.
Valuation and existence
For a sample of capitalized PP&E, examine construction workorders in detail.
Valuation
For a sample of construction work orders, vouch time andmaterial charges to supporting payroll and material usage records.Review the reasonableness of the hours worked, the workdescription, and the material used.
Valuation
Evaluate the policy and procedures for allocating overhead tothe work orders and recalculate their application.
Valuation and allocation
Determine whether corresponding retirements of replaced PP&Ehave occurred and have been properly entered in the detailrecords.
Existence
Select major additions for the year and a random sample of otheradditions and inspect the physical assets.
Existence
Vouch a sample of charges in the Repairs account and determinewhether they are proper repairs, not capital items.
Completeness
Review the useful lives, depreciation methods, and salvagevalues for reasonableness. Recalculate depreciation.
Valuation and allocation
Study loan documents for terms and security of loans obtainedfor purchase of PP&E.
Rights and obligations
Inspect title documents for automotive and real estateassets.
Rights and obligations
Analyze the productive economic use of PP&E to determinewhether any other-than-temporary impairment is evident.
Valuation
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