Question

Assume you have been hired to audit a manufacturing company. Discuss the relationship between the audit of property, plant, and equipment accounts and the audit of repair and maintenance accounts. How would you organize the audit to take this relationship into account?

Answer 1

Many clients may accidentally or intentionally record purchases of assets in the repair and maintenance account. The misstatement is caused by a lack of understanding of generally accepted accounting principles and some clients' desire to avoid income taxes because these expenses become deductions to the revenues. In addition, repair and maintenance accounts can be verified to uncover unrecorded property purchases. In other cases, however, management has capitalized repair and maintenance expenses (deduce the amount of expenses) to boost profitability and assets.
The auditor typically vouches the larger amounts debited to those expense accounts at the same time that property accounts are being audited.