Page 48 - eBook Audit Of Financial Statement Components
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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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