Question Substantive testing Balance Sheet

Your firm is auditing Purple Paints Ltd, a large manufacturer of painting products. You

have been assigned the audit of property, plant and equipment (PPE) for the yearended

30 June 2016.

Purple Paints Ltd maintains a computerised fixed assets register. The company has

three main classes of PPE: (1) Freehold Land & Buildings, (2) Manufacturing

Machinery, Plant & Equipment, and (3) Motor Vehicles.

You are concerned that the depreciation rates for Motor Vehicles may be inadequate.

You are also concerned that the recent revaluation of Freehold Land and Buildings by

20% is too high in the current economic climate.

Required:

For each management assertion listed in the table below, provide one substantive

audit procedure specifically in relation to one of the above PPE accounts that would

be used to gather sufficient appropriate audit evidence.

Management Assertion	Audit Procedure
Existence Recorded PPE assets represent productive assets in use at the end of the reporting period	Example Physical inspection of a sample of PPE items on the fixed assets register Examine supporting documentation for a sample of PPE additions Send confirmations for a sample of PPE items stored offsite
Completeness PPE includes all applicable assets used in operations at year-end
Valuation & Allocation PPE are stated at cost or a valuation less accumulated depreciation
Classification & Understandability PPE is properly classified in the financial statements
Rights & Obligations The entity owns or has rights to all recorded PPE assets at the end of the reporting period