Audit Procedures For GreenBrown Ltd: Property, Plant And Equipment

Audit Procedures to Ensure Accuracy of Summary of Property Plant and Equipment

Questions:

Your firm is the auditor of GreenBrown Ltd, a manufacturer. You have obtained a summary of the property, plant and equipment for the year ended 30 June 2015, which identifies cost and accumulated depreciation brought forward, additions and disposals in the year and depreciation charges.

A review of the management letter from the previous year’s audit shows that there were some problems in relation to making a distinction between capital and revenue expenditure; some items were capitalised when they should have been expensed and other capital items were included in repairs and maintenance in the income statement.

Another risk identified from prior years relates to depreciation calculations; there is a range of depreciation rates within categories and there has been concern that the rates applied to some assets have been too low. The depreciation policy disclosed in the financial report shows:

i. buildings: 2–4% straight line

ii. plant and machinery: 5–10% straight line

iii. fixtures fittings and equipment: 5–20% straight line.

Describe audit procedures to ensure:

(a) the accuracy of the summary of property plant and equipment

(b) all items of a capital expenditure are included in additions for the year and that no revenue expenditure has been capitalized

(c) the depreciation rates are calculated appropriately. 

This study deals with audit and assurance procedures. In this particular assignment, case studies are provided with relevant questions to answers at the end. In the first case study, it includes firm as auditor of GreenBrown Ltd (Whittington and Pany 2012). GreenBrown is a manufacturer that faces problems and needs audit services and professional advices as a client. It is required in obtaining summary of latest financial reports on Plant, Property as Equipment for the year ended 30^th June 2015. It needs to identify cost as well as accumulated depreciation that brings forward ways for disposals in specified year and depreciation charges in an overall manner. It brings forwards issues on PPE, capital expenditures as well as depreciation in the near future (Whittington 2011). It reviews management letter from the previous year’s audit that indicates problems. It needs distinctive features in case for capital as well as revenue expenditure in capitalization of expensed capital items. It is included in repairs as well as maintenance as per the income statement in an overall manner. GreenBrown should identify risk and find ways in minimizing it as far as possible. Risk relates with depreciation as well as categorization attributes for future analysis purpose. In the next case, it is noticed that client David Hydraulics faces issues with inventory count (Stuart 2012). It is noticed regarding the stocktale procedure as well as explained with proper justification. It counted for warehouse staff members for counting over the supervisor as well as staff members for the same. It believes in using manual way of managing inventory in their business operations.  

GreenBrown Ltd needs to manage with fixed assets like Property, Plant as well as Equipment for the same. It relates to those entities that requires in compiling ways for revised accounting standards (Spiceland, Thomas and Herrmann 2011). It is the use of production of goods as well as services for administrative purposes. It is expected for using the assets for specified period. PPE launches for turning into slow current assets for sale. PPE generally gets carried over from one year to another. Average units of PPE involves in relatively larger rupee values. PPE assumes high value items as well as acquisition of items are closely controlled (Scott and Jacka 2011). It includes control aspects in providing special significance in constructing PPE.  PPE gets accounted like stocks as it gives rise to stock for presentation on the financial statements for specified time.

Audit Procedures to Ensure All Items of Capital Expenditure Are Included in Additions

Auditor needs to review the system of internal controls in relation with PPE. It controls over the expenditure as incurred in PPE for acquisition in self-constructed firm. It is one of the effective methods that exercise over control capital budgeting techniques for proper authorization of expenditure on periodical basis (Reding 2011). It uses actual budgeted score with other amount of GreenBrown Limited. It includes control allocation of expenditure in between capital as well as revenue in an overall manner. It ensures accountability as well as utilization of controls of PPE for future analysis purpose. It establishes ways for maintaining appropriate methods for the same. It includes custodian in management of such assets like physical verification by management in case of disposal of PPE. It involves in information controls for reliable information on calculation of allocated depreciation like recording disposal as well as preparing tax returns in the most appropriate way (Pflugarth 2011).

Auditor needs to evaluate in the records for as well as classification as well as pending installation. It ensures conducting of appropriate system for capturing the direct identifiable costs for capitalization purpose. It needs reconcilement for the capital flow of work as well as verifying additional years (Louwers 2011). It includes capital assets for impairment of capital work in and within specified period. It requires safeguarding of assets for any damage and destruction caused in any form. Auditor needs to recognize in the cost of an item for PPE. It checks on the reliability of assets for ascertainment of management for future economic benefits of business entity in an effective way. 

GreenBrown Ltd faced problems in bringing distinction between capital as well as revenue expenditure for the same (Libby, Libby and Short 2011). Auditors need to bring uniformity of treatment and includes capitalization of revenue in the near future. It is important to understand the fact that auditor needs to perform in the financial statement analysis as per assertions in capital expenditure process for the same. Assertions are embodied in form of financial statements as used by auditors for potential misstatements in taking desired forms. Auditors needs to value completeness of information (Leung 2011). This reveals transactions for recording in the financial statements in assets, liabilities as well as equity interests. It involves disclosures as included in the financial statements. It engages in occurrence for gathering facts on transactions as well as events for recording GreenBrown Ltd capital flows in the near future. It should involve in valuation as well as allocation of capital expenditure in the financial statements amounts for future analysis purpose (Kemp 2013). It is served as per accounting policies in accordance with financial reporting framework. It involves in allocations as well as valuation adjustments on matters relating impairment of fixed assets like goodwill of GreenBrown Ltd. It takes place financial as well as other information for disclosing on fair terms in the most appropriate way. It ensures allocation of valuation attributes for disclosing capital expenditures values in precise forms (Jubb 2012). Auditor need to check on the calculations of capital expenditure values for future analysis purpose. It helps in identifying ways for charging adequate accounting policies in the most appropriate way. It should reveal guidance as per Accounting Standard for bringing significant changes in the near future. It needs to calculate on capital expenditure methods based upon usage in an effective way (Horngren 2013). It should revolve around ways for carrying out capital expenditures values in against Generally Accepted Accounting Principles for the same. It needs to capitalize capital expenditure of GreenBrown Ltd as per the given accounting standard. It needs to grant on deducted gross value of assets as indicated in the accumulated nominal values in the most appropriate way. It views at the competent position that needs urgent consideration by the auditors as far as possible. It verifies cost minimization with adequate resource allocation for future analysis purpose (Hooks 2011). 

Audit Procedures to Ensure Depreciation Rates Are Calculated Appropriately

GreenBrown Ltd needs to check on the issues relating to audit of depreciation. It is noticed range of depreciation rates in and within categories that concerns with application of assets for future analysis purpose (Hall and Hall 2011). In the financial report, deprecation of building is mentioned as 2 to 4% as per straight-line methods.

Plant and machinery at 5-10% and fixtures and

Equipment at 5-20% straight line in an overall manner

From the above depreciation method and percentage for calculation of fixed assets transactions by GreenBrown Ltd. Auditors should aim at checking the calculated depreciation as well as compared in preceding years (Ghandar and Tsahuridu 2013). It needs to verify and identifying in the variations related to assets evaluation for future analysis purpose. It examines ways for depreciation charges as well as generally accepted bases for depreciation accounting in an overall manner. In accordance with Accounting Standard, it is required for the auditor for checking each part of fixed assets cots in relation with total cost of an item (Dyckman, Magee and Pfeiffer 2011). Demarcation of capital expenditure as well as revenue expenditure considers as an important function by an accountant. It includes expenses as indicated in the income statement as well as balance sheet for the same. Auditor needs to check out correct demarcation for future business activities of GreenBrown Ltd. Auditors needs to ask for officer on matters relating to doubtful items (Dalkin 2011). Auditor needs to understand on the nature of work as well as procedures of an organization. It understands the rules as well as regulations of business for identification of expenditure revenues as well as capital expenditure in an overall manner. It is essential for the auditors in gaining understanding regarding demarcation regarding generally accepted principles form for future analysis purpose. Auditor need to consider facts on making payments based upon situation for capital expenditure as well as revenue expenditure in the most appropriate way (Cascarino and Cascarino 2012). It is essential for making agreement based upon application of risk in an effective way. 

Conclusion

From the above study, it is easy to gather facts on audit ad assurance services made by professional auditors. It comprises of two situations. Each situation requires for identifying the weakness as well as justification for the same. The above study clearly identifies weakness relating Property, Plant and Equipment. Further, GreenBrown Ltd faces difficulty in capital expenditure treatment as well as depreciation methods. It uses straight-line methods for evaluation purpose that needs correction as far as possible. It needs evaluation on the matters relating with proper justification on audit process. In the next case, stocktaking process needs correction as far as possible. It should use computerized way of handling stock as far as possible. It will save time as well as provide accuracy in an overall manner. It will help in assisting ways for ordering fresh as well as replacement stock on accurate basis. It ensures minimization of wastage stocks as well as damage poor storage that needs urgent attention by David Hydraulics Ltd. It requires supply of key financial figures for calculating gross margin based upon the business performance in the most appropriate way.  

Reference

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