Auditing Property Plants and Equipment | Auditing Course | CPA Exam

In this video, we explain auditing property plants and equipment.

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Auditing Property, Plant & Equipment (PP&E)
Auditing Property, Plant, and Equipment (PP&E) ensures that these long-term tangible assets are properly recorded, valued, and safeguarded in compliance with accounting standards. The audit focuses on verifying existence, ownership, valuation, and completeness of PP&E.

Audit Objectives for PP&E
Existence – Ensure recorded assets physically exist.
Completeness – Confirm all PP&E acquisitions and disposals are recorded.
Ownership & Rights – Verify the company owns the recorded assets.
Valuation & Allocation – Ensure assets are recorded at correct values and depreciation is accurate.
Presentation & Disclosure – Confirm PP&E is classified correctly in financial statements.

Key Audit Procedures for PP&E
1. Inspection & Physical Verification
Perform physical asset counts to confirm existence.
Match assets with the fixed asset register.
Check for ghost assets (recorded but non-existent assets).
2. Examination of Acquisition & Disposals
Verify purchase invoices and approval documentation for acquisitions.
Review capitalization policies to ensure expenses are correctly classified.
Check disposal records and confirm proper recording of asset retirements.
3. Depreciation & Impairment Testing
Review depreciation schedules for accuracy and compliance with policies.
Assess whether assets are properly depreciated over their useful lives.
Conduct impairment reviews to ensure assets are not overstated.
4. Verification of Asset Ownership
Examine title deeds, purchase agreements, and lease contracts.
Ensure leased assets are properly classified under finance or operating leases.
5. Reconciliation & Analytical Procedures
Compare current year PP&E balances with prior years for unusual changes.
Analyze capital expenditures against budgeted amounts.
Check for significant write-offs or impairments that may indicate fraud.
6. Internal Control Assessment
Evaluate whether PP&E acquisition and disposal policies are followed.
Review security measures to protect against asset theft or misuse.
Assess segregation of duties in asset management and recording.
Common Risks & Audit Concerns
Overstatement of Assets – Failing to record impairments or recording assets that do not exist.
Incomplete Asset Recording – Not recording newly acquired assets.
Misclassification – Incorrectly recording capital expenses as repairs/maintenance.
Depreciation Errors – Using incorrect depreciation rates or methods.
Unauthorized Disposals – Missing approvals for asset sales or retirements.

Conclusion
Auditing PP&E ensures assets are accurately recorded, fairly valued, and properly safeguarded. Auditors must conduct physical inspections, verify ownership, check valuation, and assess internal controls to prevent misstatements and fraud.


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