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Auditing Exercise for Property Plant and Equipment - Assignment Example

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Auditing Exercise for Property Plant and Equipment

Management must implement the internal control activities to reduce the three inherent risk factors, management must implement the following internal controls procedures. The same audit objective includes reducing the risk factors by physically determining if management recorded all assets seen and affirmed by the auditor properly and completely in the proper accounting period. The inherent risk factors for item 1 and 3 are complex accounting issues (proper recording of property plant and equipment assets and allowance for depreciation), difficult to audit transactions (collusion between management and employees to fraudulently present Enron-style financial statements), and misstatements (unintentional errors) are detected (Whittington, 2005). ADJUSTING ENTRIES The auditor found the recommended adjusting entries for item 1 item 3 and after performing the audit procedure test of details of transactions or reconciliation. This is in compliance the auditor’s meeting the audit objectives. The auditor must obtain sufficient audit evidence to support all management assertions shown in the financial reports. Reconciliation entails the ensuring that detailed records have the same balances as the general ledger control accounts. The following adjusting entries are necessary in order to present the true balances of the land account, buildings account, machinery and equipment account, depression expense accounts, and allowance for depreciation account (buildings) and allowance for depreciation accounts (machinery and equipment), in compliance with no. 1 item instructions (D Kieso, J Weygandt, T Warfield, 2011). Item no. 1 Assertions: 1. Completeness assertion: Management ensures the recording of all existing property, plant, equipment, allowance for depreciation and other accounts in the same accounting period. The accountant did not record the donated assets were in the books of accounts received from Crux City. Thus, the effect on the audit procedure is to increase the building account in item no. 1by $ 400,000. Management must make an adjustment. Otherwise, item no. 1 (building account) will be understated. Likewise, the allowance for depreciation account, item 1, will be understated. 2. Existence or Occurence assertion : All recorded property, plant, equipment, allowance for depreciation and other accounts exist or are owned by the company in the same accounting period. The effect on audit procedure is to inspect the official documents that include land titles, official receipts, and donation document will prove the existence or occurrence (ownership) of the reported assets. 3. Valuation or allocation assertion: all amounts recorded in the property, plant, machinery and equipment, allowance for depreciation accounts are accurate and proper classification of the business transactions are made. The audit procedure includes analytical procedures. The effect on audit procedure is to ensure accuracy, classification, cut-off, detail tie-in of the property, plant, equipment, depreciation allowance, and depreciation expense balances during the year under audit. In terms of effect on audit procedure, the auditor must determine the existence or occurrence assertion audit assertion are valued accurately by personally inspecting if all recorded property, plant, and equipment accounts recorded in the books exist (Whittington, 2005). The building, machinery and ...Show more

Summary

Subject: Finance and Accounting ( 7 minute presentation) The property management process entails the proper recording of all acquisitions and disposals. The company must implement common control activities for the relevant assertions related to property, plant and equipment…
Author : ovandervort
Auditing Exercise for Property Plant and Equipment essay example
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