Case Study: Property and Equipment - Substantive procedures

Your firm is auditing the financial statement of Newthorpe Manufacturing Ltd for the year ended 30 June 2015. You have been assigned to the audit of the company's property, plant and equipment, which includes freehold land and buildings, plant and machinery, fixtures and fittings and motor vehicles.

The freehold land and buildings were purchased 12 years earlier (in July 2003) for $2 million. At the date of purchase, a valuer estimated that both the land and the buildings each had a value of $1 million. Depreciation has been charged since 2003 on the building at 2% per year on cost. At 30 June 2015 the accumulated depreciation is $200,000 before the revaluation.

A qualified valuer who is not an employee of the company, valued the land and buildings at $5 million ($2.9 million for the land and $2.1 million for the buildings) These values will be incorporated into the financial statements as at 30 June 2015.

The partner in charge of the audit is concerned at the large increase in the value of the land and buildings since they were purchased. She has asked you to check the reliability and accuracy of the valuation. she suggest that ASA 620 Using the work of an Auditor's Expert (ISA 620) could help you when carrying out this work.

In addition, you have been asked to verify the existence and completeness of plant and machinery recorded in the company's computerised non-current asset register, which records the description of each non-current asset, the original cost, the depreciation charge and the accumulated depreciation

Required;

1. Describe the audit work your will carry out to check whether the valuer has provided an accurate and independent valuation of the land and buildings

2. Describe the audit work you will carry out to check the existence and completeness of plant and machinery, as recorded in the company's non-current asset register.