Using the example audit program discussed in class (available on blackboard), use the information below to complete the highlighted steps in the program (print the program and fill it in manually). In the work paper reference column describe what you did (or would do based on the below analysis). Sign off all completed steps. Deletions from CIP consist of office equipment for $53,108 and the first part of a capital improvement project of $2,000. The remaining asset additions are for a truck purchased for $52,983. The leasehold improvements consist of three AC units (two for $13,000 and one for $4,338). Considering materiality, explain your test strategy for each asset addition category. The capitalization policy is to capitalize additions over $10,000. UEC Fixed Assets Deletions 2017 Additions 2018 Land 4,640 4,640 CIP 63,262 55,108 8,154 Buildings 3,936,573 3,936,573 3,027,836 108,091 Equipment, Furniture 3,135,927 Lease Hold improvements 30,338 469,659 639,321 intangible assets 189,057 189,057 7,860,689.00 138,429 55,108 7,744,010.00 EBE Audit Objectives Financial Statement Assertions Existence or occurrence Property and equipment reflected in the balance sheet physically exist and the entity has legal title or similar rights of ownership to them. Rights and obligations Completeness Property and equipment include those that are purchased, contributed, constructed in-house or by third parties, and leases meeting the criteria for finance leases. Existence or occurrence Property and equipment additions are recorded correctly as to account, amount, and period. Capital items are identified and distinguished from repairs and Rights and obligations maintenance expense items. Completeness Existence or occurrence Completeness Rights and obligations Retirements, trade-ins, and idle property and equipment are promptly identified and recorded correctly as to account, amount, and period. Valuation or allocation Depreciation calculations are made and allocated using proper estimated useful lives and methods Valuation or allocation Property and equipment that are idle or held for resale are identified and classified separately from property and equipment currently used in operations. The net carrying value of property and equipment is expected to be recoverable in the ordinary course of business. Presentation and disclosure Presentation and disclosure Property and equipment and related depreciation are appropriately presented in the financial statements and adequate disclosures made of (1) the basis of valuation, (2) major classes of property and equipment, (3) depreciation methods, (4) amounts of capitalized leases, (5) capitalized interest, and (6) property and equipment that are pledged or subject to liens 1. Obtain an understanding of the client's policies and procedures with respect to capitalization and depreciation methods used. 2. Prepare or obtain from the client a summary of fixed asse ts and related depreciation showing the following information: a Classification of maj or classes of property such as land, buildings, furniture and fixtures, machinery and equipment, leasehold improvements, construction in leases Asset balances at the beginning of the vear b Asset additions during the year Retirements and disposals during the year d. e. Other changes during the year (e.g., transfers, reclassi fications) f Asset balances at the end of the year Depreciation methods and estimated depreciable lives g Perfommed Workpaper Reference Ry h. Accumulated depreciation balance at the beginning of the vear Current-ye ar additions to accumulated depreciation accounts jCurrent-year reductions of the accumulated depreciation ac counts hanges to the accumulated depreciation accounts, (e.g, transfers, reclassifications) Accumulated depreciation balance at the end of the ear 3. Trace balances at the beginning of the year for asset balances and accumulated depreciation balances per the summary schedule of property and equipment in Step 2 to ending balances per the prior years' working ers. 4. Obtain from the client or prepare a listing of all property asset additions balance in Sten 2c above showing (all description of the asset, (b) whether the item is new or used, (c) date the asset was acquired or placed in service, ul life, nd (referenee mber such as vendor invoice date check number, purch ase contract, etc., and perform the following procedures for selected asset additions: a Determine if the assets capitalized are in accordance with the entity's capitalization policy. Determine if the acquisition was properly authorized by reference to the minutes of me etings of the b. Board, capital expenditures budget, or other sources. c. Substantiate the asset's cost by examining supporting documentation such as vehdor involces, purehie construction in progress), deeds (for real property), or certificates of ownership. Using the example audit program discussed in class (available on blackboard), use the information below to complete the highlighted steps in the program (print the program and fill it in manually). In the work paper reference column describe what you did (or would do based on the below analysis). Sign off all completed steps. Deletions from CIP consist of office equipment for $53,108 and the first part of a capital improvement project of $2,000. The remaining asset additions are for a truck purchased for $52,983. The leasehold improvements consist of three AC units (two for $13,000 and one for $4,338). Considering materiality, explain your test strategy for each asset addition category. The capitalization policy is to capitalize additions over $10,000. UEC Fixed Assets Deletions 2017 Additions 2018 Land 4,640 4,640 CIP 63,262 55,108 8,154 Buildings 3,936,573 3,936,573 3,027,836 108,091 Equipment, Furniture 3,135,927 Lease Hold improvements 30,338 469,659 639,321 intangible assets 189,057 189,057 7,860,689.00 138,429 55,108 7,744,010.00 EBE Audit Objectives Financial Statement Assertions Existence or occurrence Property and equipment reflected in the balance sheet physically exist and the entity has legal title or similar rights of ownership to them. Rights and obligations Completeness Property and equipment include those that are purchased, contributed, constructed in-house or by third parties, and leases meeting the criteria for finance leases. Existence or occurrence Property and equipment additions are recorded correctly as to account, amount, and period. Capital items are identified and distinguished from repairs and Rights and obligations maintenance expense items. Completeness Existence or occurrence Completeness Rights and obligations Retirements, trade-ins, and idle property and equipment are promptly identified and recorded correctly as to account, amount, and period. Valuation or allocation Depreciation calculations are made and allocated using proper estimated useful lives and methods Valuation or allocation Property and equipment that are idle or held for resale are identified and classified separately from property and equipment currently used in operations. The net carrying value of property and equipment is expected to be recoverable in the ordinary course of business. Presentation and disclosure Presentation and disclosure Property and equipment and related depreciation are appropriately presented in the financial statements and adequate disclosures made of (1) the basis of valuation, (2) major classes of property and equipment, (3) depreciation methods, (4) amounts of capitalized leases, (5) capitalized interest, and (6) property and equipment that are pledged or subject to liens 1. Obtain an understanding of the client's policies and procedures with respect to capitalization and depreciation methods used. 2. Prepare or obtain from the client a summary of fixed asse ts and related depreciation showing the following information: a Classification of maj or classes of property such as land, buildings, furniture and fixtures, machinery and equipment, leasehold improvements, construction in leases Asset balances at the beginning of the vear b Asset additions during the year Retirements and disposals during the year d. e. Other changes during the year (e.g., transfers, reclassi fications) f Asset balances at the end of the year Depreciation methods and estimated depreciable lives g Perfommed Workpaper Reference Ry h. Accumulated depreciation balance at the beginning of the vear Current-ye ar additions to accumulated depreciation accounts jCurrent-year reductions of the accumulated depreciation ac counts hanges to the accumulated depreciation accounts, (e.g, transfers, reclassifications) Accumulated depreciation balance at the end of the ear 3. Trace balances at the beginning of the year for asset balances and accumulated depreciation balances per the summary schedule of property and equipment in Step 2 to ending balances per the prior years' working ers. 4. Obtain from the client or prepare a listing of all property asset additions balance in Sten 2c above showing (all description of the asset, (b) whether the item is new or used, (c) date the asset was acquired or placed in service, ul life, nd (referenee mber such as vendor invoice date check number, purch ase contract, etc., and perform the following procedures for selected asset additions: a Determine if the assets capitalized are in accordance with the entity's capitalization policy. Determine if the acquisition was properly authorized by reference to the minutes of me etings of the b. Board, capital expenditures budget, or other sources. c. Substantiate the asset's cost by examining supporting documentation such as vehdor involces, purehie construction in progress), deeds (for real property), or certificates of ownership