Enhance Sales Audit Procedures for Construction Industry

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hello and welcome to the channel in today's video we're going to be talking about the audit testing and all the procedures for ppe that is property plans and equipment so this video is brought about because one of my subscribers requested for a video on ppe so i'm going to be looking at the other testing and the procedures for ppe so we're going to get right into this without wasting any more time so now as usual this is our walking paper and if you follow my previous video i always say in your working paper the company name has to be there right so when you're auditing when you have a working paper the name of the company has to be there so that when somebody picks up your working paper they know what client you're working on so you can come across a situation whereby in an exam or um in any situation you are told what are the procedures or what are the um audit evidence for property plant and equipment so this is what i'm going to be taking you through today like what procedures would you perform so i'm taking it from the perspective of someone working in an accounting firm or in an audit film so if you've never worked in an audit firm before i'm going to be taking you through that perspective so this is our working paper and you can see here i have my working paper in an excel format so your working paper can be in any format for me i have my in excel it could be in pdf it could be in word document as long as your working paper is well you know labeled that is the important thing so we're going to put the company name right here and you're going to say what is this working paper all about so if somebody picks it up you know that this working paper is about fixed assets and amortization schedule right and then you're going to put the year end for that client so in your working paper you're going to say okay what is the purpose of this working paper what are you trying to achieve so here we say to gain assurance over the existence and valuation and you know what assertions are i believe you know what assertions are right so for ppe the assertions we are concerned about is existence and valuation of the ppe so you can see right here pbc this means this uh working paper was provided to us by the client so when you're auditing the client they're going to provide you with their ppe schedule because you can do that on your own so you're going to request from the client they are ppe schedule which you can see right here so and then you have to pull this to show that okay this working paper was provided to you by the client so all you're doing you're just going to do your audit work on the schedule that was provided to you by the client so now we know the purpose that we are concerned about existence and valuation so what nest now let's look at the procedure this is something you can be asked in an exam now what are the procedures so this is what we are doing right here right so the first thing i said is that we are going to obtain the client's capital asset continuity schedule which is what we have here so i told the client can you please provide me with your um ppe continuity schedule which they did so that is what we have right here and so that is one um procedure you can say so if you're in an exam you can say i'm going to obtain the client's capital asset continuity schedule or the client's ppe schedule and what are you going to do with that schedule you're going to agree the opening balances right because they're going to be opening balances so you're going to agree that to the prior year audited financial statement you want to see okay the opening balance is in matching with what was audited last year so that's going to be our step number two and number three we're going to foot the um shadows so when i say food that's like an audit terminology that's like an audit slang right food just means you're going to um check the arithmetical accuracy you're going to do your own um proofing you're going to recalculate what the client has given to you so you're going to put the schedule for arithmetic accuracy right and agree the ending balance to the gl so you want to be sure that the schedule you're giving ties to the gl the client is also going to give you their gl so you want to ensure that what you have on the schedule ties to the gl and another procedure you can say i'm going to recalculate the amortization amortization expense right because for the precession that's going to be openly balanced there's going to be depreciation for the year so as auditors we are going to recalculate that so we're going to recalculate the amortization expense for the year and then what are you going to do when you do that you're going to inquire with management regarding significant differences so while you're doing your recalculation if you come across any significant differences from what you calculated then you have to inquire management what is the reason for this difference and they're going to tell you the reason if it's something that needs to be adjusted you as the auditor needs um to cr book the adjustment for the client okay and then what is another procedure you can put in your um in your quest in your answer when you're answering a question on other procedure you can say i'm going to test additions and disposers of ppe right so if there were additions during the year what you have to do something about those additions what are you going to do you're going to test the additions to be sure that the additions actually um occur during the year and to be sure that the depreciation has been properly calculated so these are like five procedures you have which you can write down whenever you're answering a question on ppe so now we've seen the procedures let's look at the practical aspect so how do we actually perform the audit testing and all the procedures for ppe so the conclusion usually comes last that's when we are done with our um testing we are going to put our conclusion right so let's leave that for now so let's come right here so you can see the client provided us with their ppe schedule and you can see the gl account these are all the gl account right here and these are the list of ppes they have they have land building remember you're not the one preparing this schedule the client is going to give it to you all you're doing on the schedule is you're just trying to um perform your audit work right based on those procedures we listed earlier so these are the um assets the client has and then the client has told you what the depreciation rate had and then you know for land there's no depreciation right so that's why you have zero year and the client has given you the other depreciation rate for the asset and the number of years you have them right here and then you have the depreciation method if you straight line um declining balance or if not if there is no just like for land and then what was the first we said we are going to obtain um the clients capital asset continuity schedule which we did and what we should we're going to do next we're going to agree the opening balance right so this is what we did here so this is the client's balance from last year 31st um december 20x that was the prior year balance and you can see we documented right here that's py that means it addressed to previous year so by doing this you're already performing your audit work so yeah checking this with the audited financial statement for last year so you're going to look at this does this agree does this tie to the balance of last year if it does you're going to put it p y p y p y or whatever um legend you want to use so that means it agrees to previously so somebody who picks up this working paper knows that you've actually checked the um opening balance to be sure it ties with the prior year so what did we say we're going to do next we're going to put the shadow for arithmetic accuracy so let's see if we did that yes can you see we actually did that so what you're doing is you're trying to sum up you want to be sure that the balance the client has here is correct so that was what i did here and you can see i put c that means calculated so you can use any um symbol depending on um whenever you want to show that okay you've actually performed this work so you can see i summed up all this stuff and i ensured this balance was correct so that was what i have seen that means it has been calculated again so that's what i did i'm trying to foot to check for the arithmetic accuracy so can you see we did that for um almost all the columns right here so that is what you're going to do you're going to check for what arithmetic accuracy and what are we doing this they're going to recalculate the amortization expense for the year right and then inquire with management for any significant differences so let's see if we did that here so for this this means that um the total asset agrees to the current year lead sheet we call it lead sheet right so if you're working on all these families called the niche likes where you have all your working papers so that's why we have this right so this agrees to delete sheet so this is another um audit work we are performing right here so we said we are going to calculate the depreciation expense so you can also see we checked the depreciation for last year we checked it does it agree to the previous year you can see p y p y p y that means it agrees to the previous year right yeah so this is the actual depreciation for this year 20xy so what are we going to do as auditors we are going to do our recalculation so can you see so this is your work as an auditor this is what you're actually doing so whenever you're answering a question on auditing this is what you are actually doing you're just re-performing you're just recalculating so here we are going to do our recalculation can you see and we calculated our own depreciation right here for here there was no difference here you can see we had the difference so if the difference is significant and you know how to calculate depreciation right if you straight line you follow the straight line method the client has already given you the number of years if it's declining method you follow the declining method so you do your own recalculation here and if you have any difference if it's significant then you have to inquire of management why is this why do we have this difference and they have to tell you but if it's not significant you can leave that right you can move that to your summary of differences and you can see right here we have nm that means it is not material or it is not significant so we are we might decide not to follow up with this but assuming it was significant we have to inquire of management so can you see that we've actually done our recalculation here and we also did our recalculation for the net book value which is also easy right so you do your recalculation here so as auditors this is what you're doing on the clients ppe schedule right so we've done our calculation and then make sure you note any difference if it's material inquire management if not you can just write note material or um whatever you think you want to write there so what was the last thing we said we are going to do we are going to test additions and disposers for this um shady you can see there was there are no disposers can you see that there was no disposers during the year but they were addition so what do we do with the additions we test that too right you're going to pick some additions and i'm going to test that you can see here we are doing the addition testing right and then you also have to document the purpose to gain assurance about the classific classification accuracy and existence of ppe additions right so what is the procedure you're going to perform for this you're going to obtain the detailed ppe schedule which we already did in the other tab you can see we obtained that already so what are you going to do now you're going to select sample for the addition so if there were 10 additions during the year you're going to select sample you could select to sample depending on your sample calculator if your sample calculator says pick two samples or pick three samples you're going to select the samples and say okay we're going to test these samples and what do you do with those samples you're going to vouch the selected addition sample to the invoice and that is what we are doing here so can you see this is based on the pp schedule so you're going to pick a particular sample so let's assume we pick this sample the account number is one five five zero and we the description is equipment one the date of purchase we're going to pick all this information from where from the ppe schedule right and this is the work we are going to do as auditors so we are going to trace it to the invoice okay does it have an invoice yes we put the invoice number what is the invoice date so you are going to ask the client so if you are picking for samples of five you're going to ask the client for all the invoices for those five samples and when they provide those invoices to you you're going to start doing your work right here so trace it to the invoice number to the invoice date so when you're writing your procedures these are some things you can write that i'm going to trace to the invoice um look at the invoice date trace to the invoice you can put yes right and then you're going to put the amount so does the amount on the invoice does he agree to what you have here and then you're going to put the description is it well classified is it recorded in the current period and is there any difference so can you see so this is how you perform testing on ppe so i hope this video has helped your understanding on the audit procedure and audit testing for ppe thank you so much for watching the video um if you enjoyed watching please make sure to like the video and if you're not subscribed please subscribe to the channel as there's going to be more videos thank you very much for watching the video today i'm going to see you in the next video and bye