Page 48 - eBook Audit Of Financial Statement Components

Purpose of auditors perform an audit of PPE because:

(a) Property, plant and equipment often represents the
largest category of assets in the Statement of Financial

Position (balance sheet), and

(b) The expenses associated with PPE are material factors in

determining profit.

4.1 Developing the Audit Plan

PPE transactions relating to PPE are few and are usually

individually material, thus assessment of control risks relating to

these transactions is rarely necessary.

4.1.1 SUBSTANTIVE PROCEDURES

Substantive procedures are designed to reduce the risk of
misstatements in PPE balances, with inherent risks assessed as

being moderate to high, and control risks not assessed at all (thus,

taken to be high).

In the first audit, evidence must be obtained as to the fairness of

the opening balances and the ownership of the assets making up

the balances. When the entity has previously been audited by

another firm of auditors, this evidence may be obtained from a
review of the predecessor auditor's working papers.

If the entity has not been previously audited, the auditor must

undertake an investigation of the opening balances. Information

concerning opening balances obtained in the initial audit is
usually recorded in the permanent audit file.

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