Methods of Calculating Depreciation The total amount of depreciation over the life of a fixed asset is computed by deducting the residual value from the total cost of the fixed asset. Some of the important techniques for calculating depreciation are given below. 1. Straight line depreciation Majority firms use straight line depreciation method as it assists the accounting department to avoid clerical complexity and make financial reporting easy. As Bragg (2002) points out, straight line depreciation method is based on the assumption that each accounting period of the asset’s life has an equal amount of depreciation (p.189). The procedures for calculating depreciation under straight line method include determination of useful life of the asset in years, determination of salvage value of the asset, deduction of the estimated salvage value from the purchase price of the asset, and finally substitution of identified valued into the equation. 2. Reducing balance method Under this method, a high annual depreciation is charged in the early years of an asset’s life and the charged annual depreciation progressively diminishes as the asset ages. To record this pattern of depreciation, an annual depreciation is charged as a fixed percentage of the written down value of the asset. Substantive Audit Procedures An audit strategy generally deals with the assessment of internal controls and the performance of substantive tests. As Wilson and Colbert (1991) state, a substantive test generally involves analysis procedures and tests of details. Analytical procedures assist the auditor to draw conclusions on the basis of expected amounts calculated while the test of details involves the evaluation of details of the construction equipment account for the purpose of reconstructing and formulating conclusion about the reported account balance. The goals of the auditor can be attained at less cost and time through analytical procedures rather than test of details. Analytical procedures According to recent accounting standards, there are a number of analytical procedures ranging from simple comparisons to use of complex models. However, most commonly used procedures are trend analysis, reasonable tests, ratio analysis, and structural modeling. A. Trend analysis Under this method, the auditor can choose either a diagnostic or a casual approach. The diagnostic approach aids the auditor to evaluate whether the current balance of the construction equipment account is out of line with the trend identified with the asset’s previous account balances whereas the casual approach assists the auditor to calculate an expected balance for that account. B. Reasonable tests Under this analytical procedure, the auditor calculates an expected amount for the equipments account balance using nonfinancial data for the current period. In this method, only the operating data for the auditing period is taken into consideration. C. Ratio analysis In ratio analysis method, the auditor compares relationships among construction equipment balances. Generally, ratio analysis is applied on a times series or a cross sectional basis. D. Structural modeling Using this type of analytical procedure, the auditor frames a statistical model from financial or nonfinancial data of previous accounting period to forecast current equipment account balances. Test of details As stated, “
Methods of Auditing Construction Equipment Depreciation (Add (Add (Add Date) Methods of Auditing Construction Equipment Depreciation Introduction It is necessary for business concerns to record the consumption of fixed assets over time for the purpose of reflecting their reducing value and thereby analyzing actual state of affairs of the organization…
The list of Employers Requirements (ER) is a critical step in which most construction projects are initiated. The purpose of the ER is to identify the planning mechanisms, resource mobilisation techniques and other aspects that will be used in the project.
While undertaking the duties, it is necessary that the auditor should disclose all material matters in order to provide a better and clear idea. Another fact is that while conducting audit, “users derive value from the knowledge that a member of the profession has no interest in the information other than for its usefulness” (Christopher, 2012, slide.
Market forces compel the industry to rethink and develop measures to suit the changing preferences of the consumers. Additionally, Governments of different countries have put various check points that compel the house builders to reconsider the way houses are built.
When looked in to deeply, depreciation on assets has a significant effect in the determination of the financial position of the company and the presentation of the statements for the information of the investors and general public. Depreciation is charged irrespective of the enhancement in the market value of the assets based on the cost and useful life of the assets concerned.
In other words, the procedures may be applied to compare financial information recorded and secured in past, to compare the actual results with initially developed forecasts and targets etc (Internet: allbusiness.com). Indeed, these
The job of the leader is to assume the frontline role in an organization and teach the employees and workers, through examples, the path to success. The job of the leader is very extensive and requires him to
Audit risk refers to that risk that auditors are not likely to observe due to some error or fraud (Lewin 2010, p. 218). The auditors are likely to issue an unqualified opinion although some inherent risks exist but cannot be easily
Most of the time the risks are not controlled appropriately, because whenever an accident occurs, a lot of concentration is put on the effects of the accident rather than what may have caused it. With regards to the research
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