Published On:Sunday 25 December 2011
Posted by Muhammad Atif Saeed
Depreciation Expense Audit Program
Customized Audit Work Program –
Audit Work Program – Depreciation Expense
Subsidiary/Department:
Date:
AUDIT OBJECTIVES:
To determine whether:
1. The provision for depreciation, depletion and amortization of all property, plant and equipment has been properly recorded on a consistent basis.
2. All gains or losses due to property, plant and equipment dispositions have been properly recorded.
3. The provision for depreciation, depletion and amortization and gains or losses from property, plant and equipment dispositions are properly described and classified and adequate disclosures with respect to these amounts have been made.
AUDIT PROCEDURES:
| Procedures | WP Ref. | Done Y/N? | By | Date | Comments |
| 1) ANALYTICAL PROCEDURES—GENERAL a. Compare the provision for depreciation, depletion and amortization, by class of property, with comparable amounts for prior periods and with budgeted amounts for the current period. Investigate significant or unusual fluctuations after considering the effects of additions, retirements and fully depreciated assets. b. Compare the ratio of the provision for depreciation, depletion and amortization to total cost of property, plant and equipment with comparable ratios for prior periods and with industry averages. Investigate significant or unusual fluctuations. c. Perform an overall predictive test of the provisions for depreciation, depletion and amortization for the current period for significant classes of property, as follows: 1. Determine an average depreciation rate based on estimated useful lives and depreciation methods, noting that they are consistent with those used in prior years. 2. Compute the average depreciable base for each significant class of property, being sure to consider all and only depreciable property. 3. Apply the average depreciation rate to the average depreciable base and compare the predicted amounts with the recorded amounts. Investigate significant variations by reference to the supporting detailed records. 2) DETAIL TESTING PROCEDURES a. Discuss with appropriate client personnel the accounting policies that affect accumulated depreciation, depletion and amortization. Consider the acceptability of the stated policies. Evaluate any changes in policies as to whether they constitute a change in accounting principles or otherwise require disclosure in the financial statements. 1. Consider the reasons for any changes and determine whether the revised estimates are reasonable. 2. Evaluate whether existing policies accomplish the objective of allocating property costs equitably over their remaining useful lives. b. Have the client prepare a summary analysis of activity in each significant accumulated depreciation, depletion and amortization account for the current period. Verify the clerical accuracy of the analysis and test it as follows: 1. Trace beginning balances to the working papers for the prior period and tie ending balances to the general ledger control accounts. 2. Cross-reference the provisions for depreciation, depletion and amortization to the appropriate lead schedules and ensure that allocations of provisions between cost of sales and operating expenses are reasonable and consistent in relation to the preceding period. 3. Relate any accumulated depreciation, depletion or amortization removed from the accounts during the period to tests of property dispositions. 4. Compare the balances of accumulated depreciation, depletion and amortization at the end of the period with the totals reflected in the subsidiary ledgers or other supporting records. Examine support for significant or unusual reconciling items. Scope:( ) c. Select a sample of property items from the supporting subsidiary records and test the computation of the depreciation, depletion or amortization recorded during the period. 1. For judgmental/nonmathematical sampling applications, apply judgmental selection techniques. Scope:( ) 2. For judgmental/mathematical sampling applications, apply random-based or haphazard selection techniques. Scope:( ) 3. For statistical sampling applications, apply random-based selection techniques. Prepare the appropriate sampling documentation worksheet. 4. Compare the computed amounts with recorded amounts. Investigate significant or unusual differences. d. Cross-reference the amount of gains or losses due to property, plant and equipment dispositions during the period to tests of property dispositions.
3) ANSWER INTERNAL CONTROL QUESTIONNAIRES 4) SUPERVISION, REVIEW AND CONCLUSIONS a) Conclude responsive to the audit objectives. b) Prepare points regarding internal controls and other business matters. c) Perform senior review and supervision. d) Clear senior review points. e) Clear manager review points. | | | | | |
PERFORMED BY: REVIEWED BY:
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| Audit Assistant | | Audit Supervisor |
