Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 12, Problem 52RSCQ
To determine
Introduction: A substantive procedure is a process or step performed by an auditor to collect sufficient and appropriate evidence regarding the completeness, accuracy, occurrence of a transaction or event.
Analytical procedure:It is one of the methods in the
Whether the
Calculation of depreciation after evaluating the assets is as below:
Salvage value=10% of original cost
Thus, the depreciation expense should be $65,835 instead of $60,500. So, depreciation recorded is lower than the actual amount and it should be rectified.
As this was part of the analytical process and there is a difference in the depreciation expense so, the auditor should plan the substantive procedure accordingly and should mainly focus on detailed verification of depreciation expense and asset value.The auditor should thoroughlycheck the accounts so that other discrepancies could be rectified attime.
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The audit senior has asked you to perform analytical procedures to obtain substantive evidence on the reasonableness of recorded depreciation expense of the delivery equipment of a client. Changes in the account occurred pretty much evenly during the year. The estimated useful life is six years. Estimated salvage value is 10% of original cost. Straight-line depreciation is used. Additional information includes:
Delivery Equipment (per General Ledger)
Beginning Balance $380,500
Additions 154,000
Disposals (95,600)
Ending Balance $438,900 Current year depreciation expense per books = $60,500.
Based on this information, develop an expectation of the amount of depreciation expense for the year as part of a reasonableness test. Does the recorded depreciation expense seem acceptable? Explain. What is the impact of the result of this analytical procedure on other substantive procedures that the auditor may perform?
The audit senior has asked out to perform analytical procedures to obtain substantive evidence on the reasonableness of recorded depreciation expense of the delivery vehicles of a client. Changes in the account occurred pretty much evenly during the year. The estimated useful life is six years. Estimated salvage value is 10% of original cost. Straight-line depreciation is used.
Additional information
Delivery equipment per general ledger shows:
Beginning balance = 380,500
Additions = 154,000
Disposals = (95,600)
Ending balance = 438,900
Current year depreciation expense per books = P60,500
Based on this information, estimate the amount of depreciation expense for the year using analytical procedures.
Does the recorded depreciation expense seem acceptable? Explain
What is the impact of the result of this analytical procedure on other substantive procedures that the auditor may perform?
You are engaged in the audit of the financial statements of Holman Corporation for the year ended December 31, 20X6. The accompanying analyses of the Property, Plant, and Equipment and related accumulated depreciation accounts have been prepared by the chief accountant of the client. You have traced the beginning balances to your prior year’s audit working papers.
All plant assets are depreciated on the straight-line basis (no residual value taken into consideration) based on the following estimated service lives: building, 25 years; all other items, 10 years. The company’s policy is to take one half-year’s depreciation on all asset additions and disposals during the year.
Your audit revealed the following information:
The company completed the construction of a wing on the plant building on June 30. The service life of the building was not extended by this addition. The lowest construction bid received was $17,500, the amount recorded in the Buildings account. Company personnel…
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Auditing: A Risk Based-Approach to Conducting a Quality Audit
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