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Auditing & Assurance


Students need to support their analysis with references from the text and a minimum of ten (10) suitable, reliable, current and academically acceptable sources – this should include at least 5 peer-reviewed academic journal articles. Academic acceptability of other sources is as advised by the lecturer/tutor.



The process of audit procedures for plant and equipment refers to those elements, which are required to be in compliance with the relevant revised as per the accounting standard determining the tangible items, which are

  1. Held for during the production process or during the supply of goods either on rental basis or for the purpose of administration.
  2. Are anticipated to be used for multiple period.

In respect with the needs to application as per the accounting standard 6 for the term plant and equipment comprises for holding up the purpose of providing the production of goods and services and there are some items, which are not for the purpose of usual mode of business. Judgement is required to be exercised in preconisation what constitutes an item of property, plant and equipment.

Risk associated with the property, plant and equipment:

The auditor needs to obtain an in depth understanding of the clients and environment to considered inherent risk, which also consists of fraud and risks relating to the plant and equipment.

  1. This consists of obtaining the understanding of the internal control over the plant and equipment. For example, preparation and reviewing of the capital budgets.
  2. Assessment of the risks consists of material misstatement and designs testing the controls and substantive procedures, which covers the following elements.   
  3. Substantiate the presence of plant and equipment that includes the assets that should no have been recognised preceding to sale as property plant and equipment. Expenses must be indentified and capitalised which includes the financial cost and the failure under the accounts of assets that are held under the financial lease for hire purchase programmes (Konchitchki and Patatoukas 2013).
  4. Creating the completeness of the recorded properties plant and equipment or the transfer of rights as the auditor has the responsibility to verify the deeds and agreements or other ownerships of the documents.
  5. Verifying the cut-off for transactions, this affects the plant and equipment.
  6. Determining that the client has the right to the recorded properties of the and the accuracy of such transactions.
  7. Determining the correctively and the appropriateness of classification of plant and equipment. For better understanding in appropriate split between the land and building or in terms of the short-term and long-term capitals. Classifying such has the ability to create a special impact on the application of accounting policies. According to the accounting standard, the entities must be in line with the component approach as it is applicable (Bahr 2014).
  8. Depreciable value: depreciation may have been in appropriately calculated on account of factors such as:
  9. Mechanical error
  10. Inappropriate use of accounting policies.
  11. Incorrect analysis of remaining useful life of plant and equipment.
  12. In correct analysis of residual value
  13. Inappropriate classification of assets
  14. Carrying cost: where a valuation method of depreciation is followed as the carrying cost provides the true value for the assets during the audit procedure as it includes the factors such as (Velte and Freidank 2015)
  15. Failure to update the valuation of current circumstances
  16. Failure to brief values correctly, using the invalid assumption or data.
  17. Valuation not performed by the competent personal

Fraud risk and errors:

There is some of the misstatement in plant and equipment in respect of fraud and errors consists of the following:

  1. Procurement of plant and machinery at an inflated price especially from a related party
  2. Incorrect recording of assets as scrap, obsolesce, missing or destroyed
  3. Expenditures for the repairs and maintenance are recorded in terms of plnt and equipment or vice versa.
  4. Capitalisms of expenditure which are incorrectly distributed to the cost of plant and equipment
  5. Recording of an assets purchased which in reality has not been affected by the entity.


  1. Lack of adequate and accurate verification of records and reconciliation of assets.
  2. Lack of adequate physical safeguard over plant and equipment.
  3. Inadequate participation of management in overseeing the employees with the access to cash and or other assets to the business entity.
  4. The auditor must also inspect the elements where the business entities has delibelitaty sold the assets below the fair market price

Internal controls:

An auditor is responsible for internal controls of the organisation relating to the  plant and equipment in following ways:

  1. Controlling the expenses incurred in the acquisition of plant and equipment: An important method of exercising the control is through capital budegeting which ensures that the auditor has to properly examine the expenses incurred. The auditor must ensure that the amount of expenses incurred does not exceed the amount of authorization in terms of allocation of expenses between the capital and revenue (Abbott et al 2012).
  2. Accountability and utilisation of controls: Accountability is concerned with the plant and equipment in order to maintain appropriate records. Hence, accountability enable the establishment of custodianship of asserts by the process of physical verification relating to the establishment and disposal of plant and equipment (Boyle et al 2015).
  3. Information controls: Such controls ensure the reliability of information available for calculation and allocation of depreciation in term of recording and disposal of assets while preparing tax returns. In addition to this it is the duty of the auditor to ensure that plant and equipments have been adequately used to meet up the objective of the business entity (Bondar 2016.).

Verification of records:

Opening balance:

The opening balance of the plant and equipment should be analysed from the records such as the scheduling the registers or ledger balances. In case of the initial engagement under the internal audit engagement, opening balance of plant and equipment must consider by the auditor for determining the accuracy of the opening balance of plant and equipment. Some of the audit procedure as laid down by the auditor includes that the evidence obtained from the assessment of the accounting records and other relevant information is a significant aspects of auditing standard. On the other hand, the auditor is under the obligation to procure the summary of the changes made to the plant and equipment in order to reconcile with the same to the ledgers (Bahr 2014).

Capital work in progress:

The auditor is under the duty to verify the records so that he can ensure that the assets, which are under the construction mode or pending the installation and not ready for intended use of clarification as work in progress.

Capital work in progress must be verified with the reference to the underlying contractor and work orders, certification of work performance by independent persons by comparing with the expenses incurred up to date with the budgets and capital assets management policy and plan, pending commitments.

It is the duty of the auditor to ensure that a useful and appropriate method must be ensured to get hold of all directly identifiable costs which are capitalised in the work in progress as such expenses are not eligible to be capitalised as these are located and charged to revenue in normal cost (Maksymov et al 2012).


The auditor should test and check the calculation of depreciation and the total depreciation arrived should be compared with the figures of the preceding years in order to identify the reasons for the variations. The auditor must examine that the depreciation must be charged adequately in compliance with the accounting standard for depreciation.

Under the revised accounting standard the auditor must examine that each part of the item of plant and equipment having cost that is significant to the total cost of the item is depreciated separately.

The auditor should review the method of depreciation that is implemented to the assets at least at the end of the financial year to ascertain that the depreciation charged highlights the true and effective utilisation. A change in the method of depreciation should be appropriately changed in relation to the accounting estimates. Hence, the auditor must verify that those assets are under the construction or installation and cannot be depreciated until the equipment is effectively utilised for impairment.


The duty of the auditor is to verify that the business entity has been made for relevant disclosure of plant and equipment. The existing rights and restrictions during the course of construction for impairment of assets revaluation should be in accordance with the accounting standard, which is applicable to the business concern.


Reference List:

Abbott, L.J., Parker, S. and Peters, G.F., 2012. Internal audit assistance and external audit timeliness. Auditing: A Journal of Practice & Theory, 31(4), pp.3-20.

Armstrong, C.S. and Vashishtha, R., 2012. Executive stock options, differential risk-taking incentives, and firm value. Journal of Financial Economics, 104(1), pp.70-88.

Bahr, N.J., 2014. System safety engineering and risk assessment: a practical approach. CRC Press.

Bock, K., 2016. Data Protection Certification: Decorative or Effective Instrument? Audit and Seals as a Way to Enforce Privacy. In Enforcing Privacy (pp. 335-356). Springer International Publishing.

Bondar, Y., 2016. Materiality of Established Errors in the Audit of Agricultural Business and Its Relationship with Documenting of Audit Procedures.Accounting and Finance, (1), pp.146-153.

Boyle, D.M., DeZoort, F.T. and Hermanson, D.R., 2015. The Effects of Internal Audit Report Type and Reporting Relationship on Internal Auditors' Risk Judgments. Accounting Horizons, 29(3), pp.695-718.

Daugherty, B.E., Dickins, D. and Fennema, M.G., 2012. Offshoring tax and audit procedures: Implications for US-based employee education. Issues in Accounting Education, 27(3), pp.733-742.

Gao, L. and Kling, G., 2012. The impact of corporate governance and external audit on compliance to mandatory disclosure requirements in China.Journal of International Accounting, Auditing and Taxation, 21(1), pp.17-31.

Guojun, W., Donghua, C. and Dequan, J., 2014. Does Differentiated Dividend Tax Affect Stock Valuation?. Nanjing Journal of Social Sciences, 4, p.004.

Hayes, R.M., Lemmon, M. and Qiu, M., 2012. Stock options and managerial incentives for risk taking: Evidence from FAS 123R. Journal of Financial Economics, 105(1), pp.174-190.

Hodge, S., 2014. The Use and Effectiveness of the Internal Audit Function on an External Audit. Available at SSRN 2430851.

Howlett, D.C., Drinkwater, K.J., Lawrence, D., Barter, S. and Nicholson, T., 2013. Findings of the UK national audit evaluating image-guided or image-assisted liver biopsy. Part II. Minor and major complications and procedure-related mortality. Radiology, 266(1), pp.226-235.

Konchitchki, Y. and Patatoukas, P.N., 2013. Taking the pulse of the real economy using financial statement analysis: Implications for macro forecasting and stock valuation. The Accounting Review, 89(2), pp.669-694.

Krishnan, G.V., Lee, H.S., Patatoukas, P.N. and Wang, A.Y., 2015. Major customer dependency: Implications for audit pricing and quality. Available at SSRN 24400

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