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Discuss Verification of non-current assets during auditing

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In an average company, the non-current assets that will be encouraged are: freehold land and buildings, plant and machinery, motor vehicles and fixtures, furniture and fittings. The verification process is similar in all these. Therefore, we shall look at freehold property and plant and machinery.

Freehold land and buildings
Audit objectives
•• To verify that there was proper authorization to acquire the land and the buildings
•• That land and building exist
•• That the company has legal ownership rights over these assets
•• That these assets are valued at an appropriate amount
•• That these assets are properly presented and disclosed in the financial statements according to the relevant financial reporting standards such as international accounting standard no. 16, 17 or 40

Audit procedures
To be able to meet the above objectives, the auditor carries out the following audit procedures:
a) Cost and authorization
This is verified by inspecting to the appropriate documentation such as the sale agreement
and surveyors certificates. To verify whether the acquisition was authorized the auditor can
inspect the minutes of the board of directors meetings at which such the green light was
given acquire the assets in question.
b) Existence
This can be verified through physical inspection of the land or the building.
c) Ownership rights
This can be verified by inspecting the title documents. The auditor should also ensure that
such title documents are in the name of the company and are free from ant charges e.g.
the land title deed should not be charged as security for loan. If this is the case then such
information should be disclosed in the financial statements.
d) Valuation
Freehold land should be disclosed at cost. Leasehold lend should be amortized over the life
of the lease. Generally buildings should be carried at the depreciated historical cost or at
depreciated revalued amounts.
The auditor should ensure that:
• The depreciation policy adopted is appropriate i.e. the rate applied and the estimated useful life.
• Where buildings or land has been revalued that this is carried out by a qualified and reputable valuer and the revaluation seems reasonable.
• That the land and buildings are evaluated for impairment and where necessary written down to the impaired value.
e) Presentation and disclosure
For purpose presentation fixed assets should be split into appropriate classes. The following
information should be disclosed:
-Depreciation policy
-Useful life’s
-Total depreciation charge for the period
-Additions of new assets or disposals during the period
-Any assets that are charged in favor of another person.

Wilfykil answered the question on April 12, 2019 at 06:05

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