Question

PP&E Assertions and Substantive Procedures. This question contains three items that are management assertions about property and equipment. Following them are several substantive procedures for obtaining evidence about management's assertions.

Assertions:

1. The entity has legal right to property and equipment acquired during the year.

2. Recorded property and equipment represent assets that actually exist at the balance-sheet date.

3. Net property and equipment are properly valued at the balance-sheet date.

Substantive Procedures:

a. Trace opening balances in the summary schedules to the prior-year audit documentation.

b. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year.

c. Determine whether the responsibility for maintaining the property and equipment records is separated from the responsibility for custody of property and equipment.

d. Examine deeds and title insurance certificates.

e. Perform cutoff tests to verify that property and equipment additions are recorded in the proper period.

f. Determine whether property and equipment are adequately insured.

g. Physically examine all major property and equipment additions.

Required:

For each of the three assertions (1, 2, and 3), select the one best substantive audit procedure (a-g) for obtaining competent evidence. A procedure may be selected only once or not at all.

Answer 1

Substantive procedures for assertions :

1. Examine deeds and title insurance certificates. ( by verifying deeds and title letter auditor will be able to check that The entity has a legal right to property and equipment acquired during the year.)

2. Physically examine all major property and equipment additions. ( by doing physical verification of the properties auditor will be able to get sufficient evidence about the existence of properties.)

3. Review the provision for depreciation expense and determine whether depreciable lives and methods used in the current year are consistent with those used in the prior year. ( it will help the auditor to ascertain that net value of property and equipment has been shown in the books