Case Study: Property and Equipment - Substantiveprocedures
Your firm is auditing the financial statement of NewthorpeManufacturing Ltd for the year ended 30 June 2015. You have beenassigned to the audit of the company's property, plant andequipment, which includes freehold land and buildings, plant andmachinery, fixtures and fittings and motor vehicles.
The freehold land and buildings were purchased 12 years earlier(in July 2003) for $2 million. At the date of purchase, a valuerestimated that both the land and the buildings each had a value of$1 million. Depreciation has been charged since 2003 on thebuilding at 2% per year on cost. At 30 June 2015 the accumulateddepreciation is $200,000 before the revaluation.
A qualified valuer who is not an employee of the company, valuedthe land and buildings at $5 million ($2.9 million for the land and$2.1 million for the buildings) These values will be incorporatedinto the financial statements as at 30 June 2015.
The partner in charge of the audit is concerned at the largeincrease in the value of the land and buildings since they werepurchased. She has asked you to check the reliability and accuracyof the valuation. she suggest that ASA 620 Using the work of anAuditor's Expert (ISA 620) could help you when carrying outthis work.
In addition, you have been asked to verify the existence andcompleteness of plant and machinery recorded in the company'scomputerised non-current asset register, which records thedescription of each non-current asset, the original cost, thedepreciation charge and the accumulated depreciation
Required;
1. Describe the audit work your will carry out to check whetherthe valuer has provided an accurate and independent valuation ofthe land and buildings
2. Describe the audit work you will carry out to check theexistence and completeness of plant and machinery, as recorded inthe company's non-current asset register.
