The audit senior has asked you to perform analytical procedures to obtain substantive evidence on the reasonableness
Question:
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
Additions154,000
Disposals(95,600)
Ending Balance $438,900Current 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?