Audit procedure of PPE & cash and cash equivalents. It's a complete package for the auditor to audit PPE & cash. However, if any correction or any suggestion is required to develop my slide please don't hesitate to let me know
The CMO Survey - Highlights and Insights Report - Spring 2024
Audit of property plant & equipment (PPE) and cash & cash equivalents (CCE)
1.
2. Definition of PPE
As per IAS 16 tangibles assets
• Are held for use in the production or supply of goods or
services, for rental to others, or for administrative
purposes
• Are expected to be used during more than one period.
Except,
• PPE classified as held for sale in accordance with IFRS 5
• Non-current assets held for sale and discontinued
operations.(e.g Biological assets; mineral rights and
mineral reserves)
3. The cost of an item of PPE shall be recognized as an asset if, and only if:
Initial recognition of PPE
Future economic benefits
will flow to the entity
Cost of item can be
measured reliably
5. Audit accretion of PPE
Accretions
Existence &
occurrence
Completeness
Valuation
Classification
6. Walkthrough on PPE
While performing walkthroughs of PPE, we’re looking for ways that
property might be overstated. Moreover, what can go wrong, whether
intentionally or by mistake?
So, during walkthrough following questions must be asked.
Are property ledgers reconciled to the general ledger?
Depreciation methods?
Relevancy of depreciation methods with the reporting framework
Appropriateness of economic life of PPE?
Controls regarding recording of PPE in the right period?
Software used to compute depreciation?
Periodic physical count of PPE?
Controls ensuring repair expenses are not capitalized?
Capitalization threshold?
7. Primary risk of PPE
Risk
factors
Overstated asset
Repair expense being capitalized
Recording property as expense
Improper depreciation method
Disposal of asset
Impairment loss
Stolen of moveable property
8. Risk of Material Misstatement of PPE
Existence &
occurrence Control High
Completeness Control High
Valuation Control High
Classificatio
n Control High
Inherent
risk
ROMM=controls risk
X inherent risk
Assertions Assessed risk Degree of risk Risk driver of ROMM ROMM
Note: If control risk is assessed at less than high, then controls must be tested to support the lower risk
assessment. Assessing risks at high is usually more efficient than testing controls.
9. Substantive Procedures for PPE
Substantive
procedure
Vouch PPE
addition
Agree opening
PPE balance
Review
economic
lives
Review dep
method
Compute dep
ratio and
compare with
LY
Review lease
agreements
Inquire
potential
decrease in
PPE
10. Required workpaper for PPE audit
Work-papers
Internal control
Assertion of risk assessment
Control deficiencies of PPE
Depreciation schedule
PPE audit program
Summary of addition and retirement of PPE
valuation of a significant asset by a valuation
specialist
11.
12. Definition
As per IAS 7 cash and cash equivalents is defined as,
“short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value”
14. While performing walkthroughs of cash & cash equivalents, we’re looking for
ways that cash might be overstated. Moreover, what can go wrong, whether
intentionally or by mistake?
Questions to be asked about,
Details about bank.
Reconciliation of bank accounts.
Cutoff period of transaction.
Bank signatories
Nature of bank a/c
Are there any cash equivalents?
Period end held cheque &
Authorized person to open & close account.
Walkthrough on cash & cash equivalents
15. Risk
factors
Cash is stolen
Overstated cash
Cash accounts not on GL
Misstated cash due to bank reconciliation
Misstated due to improper cutoff
Primary risk of cash & cash equivalents
16. Risk of Material Misstatement of Cash & cash equivalents
Existence Control High
Completen
ess Control High
Right Control High
Accuracy Control High
Cutoff Control High
Inherent
risk
ROMM=controls risk
X inherent risk
Assertions Assessed risk Degree of risk Risk driver of ROMM ROMM
Note: If control risk is assessed at less than high, then controls must be tested to support the lower risk
assessment. Assessing risks at high is usually more efficient than testing controls.
17. Substantive Procedures for cash & cash equivalents
Substantive
procedure
Confirm cash
balance
Vouch
reconciliation
item form
subsequent
month BS
Ask if all bank
accounts in GL
Inspect final
deposit and
disbursement.
Send
confirmations
18. Required workpaper for cash & cash equivalents audit
Work-papers Internal control
Assertion of risk assessment
Control deficiencies of cash & cash
equivalents
Cash audit program
Bank reconciliation for significant account
Bank confirmations