1. Property, Plant, and Equipment; Depreciation and Depletion

2. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 13-2 Controls Over Plant and Equipment Use of a plant and equipment (capital budget) Maintenance of a subsidiary ledger A system of authorizations Analysis of variances from budgeted expenditures A statement of policy distinguishing between capital and revenue expenditures A requirement that purchases of plant and equipment are subjected to normal purchasing procedures Periodic physical inventories A system of retirement authorization and documentation

3. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 13-3 Objectives for the Audit of Property, Plant and Equipment Consider inherent risks, including fraud risks. Consider internal control over property, plant, and equipment. Determine the existence of recorded property, plant, and equipment Establish the completeness of recorded property, plant, and equipment Establish that the client has rights to the recorded property, plant, and equipment Establish the clerical accuracy of schedules of property, plant, and equipment Determine that the valuation or allocation of the cost of property, plant, and equipment is in accordance with GAAP Determine that the presentation and disclosure of property, plant, and equipment are appropriate

4. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 13-4 Potential Misstatements--Investments in Property, Plant and Equipment Misstatement of acquisitions Failure to record retirements Improper reporting of unusual transactions

5. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 13-5 Substantive Tests of Property, Plant, and Equipment Obtain a summary analysis of changes in property owned and reconcile to ledgers Vouch additions during the year Make physical inspection of major acquisitions Analyze repair and maintenance expense accounts Test the client’s provision for depreciation Investigate the status of property not in use Investigate retirements of property during the year Investigate potential impairments of property, plant, and equipment. Investigate retirements of property, plant, and equipment during the year. Examine evidence of legal ownership Review rental revenue Examine lease agreements Perform analytical procedures Evaluate financial statement presentation and disclosure