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AUDIT OF

PROPERTY, PLANT

AND EQUIPMENT

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After studying this chapter, you should be able to:

Identify the audit objectives applicable to property, plant, and equipment
Discuss considerations relevant to determining the audit strategy for property, plant, and equipment
Design further audit procedures for property, plant, and equipment

Learning Outcomes

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Introduction

PPE refers to:

non-current assets held by an enterprise to assist an organization in the production, or supply of goods or services, and
are used for more than one accounting period.

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Property, Plant and Equipment

There are various classes of PPE, but all are non-current assets which are held for use by the entity or to be rented out to others. These include:

Land and buildings—which may be freehold or leasehold
Plant and equipment—machinery, vehicles, furniture and equipment and also items held under finance leases.

FUNDAMENTALS OF AUDITING

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Audit Objectives and Control

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Audit Objectives and Control (cont.)

FUNDAMENTALS OF AUDITING

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Audit Objectives and Control (cont.)

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Developing the Audit Plan

Transactions relating to PPE are few and are usually individually material, thus assessment of control risks relating to these transactions is rarely necessary.
Require an appropriate audit strategy, considering all the factors

materiality
inherent risks
a plant register

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Substantive Procedures for�Property, Plant and Equipment

Designing Substantive Procedures

FUNDAMENTALS OF AUDITING

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Substantive Procedures for�Property, Plant and Equipment (cont.)

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Conclusion

In verifying PPE, auditors verify changes in the recorded balance and inspect additions.
Transactions involving PPE are infrequent, and where material, are usually subject to special treatment, thus auditors rarely test controls over non-current assets transactions, preferring to adopt a predominantly substantive approach.
PPE are likely to be overstated than understated.

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