Audit Program for Property, Plant and Equipment

Agency Name:
Balance Sheet Date:

Instructions:
The auditor should refer to the audit planning documentation to gain an
understanding of the financial reporting system and the planned extent of testing for
Property, Plant and Equipment (PPE). Modification to the auditing procedures listed below
may be necessary in order to achieve the audit objectives.
All audit work should be documented in attached working papers, with appropriate
references noted in the right column below.

Audit Objectives Financial Statement Assertions

Property, Plant and Equipment (PPE) Existence or occurrence
reflected in the balance sheet physically exist Rights and obligations
and the entity has legal title or similar rights
of ownership to them.
PPE include those that are purchased, Completeness
contributed, constructed in-house or by third
parties, and leases meeting the criteria for
finance leases.
PPE additions are recorded correctly as to Existence or occurrence
account, amount, and period. Capital items Completeness
are identified and distinguished from repairs Rights and obligations
and maintenance expense items.
Retirements, trade-ins, and idle PPE are Existence or occurrence
promptly identified and recorded correctly as Completeness
to account, amount, and period. Rights and obligations

Depreciation calculations are made and Valuation or allocation

allocated using proper estimated useful lives
and methods.
PPE that are idle of held for resale are Valuation or allocation
identified and classified separately from PPE Presentation and disclosure
currently used in operations. The net carrying
value of property and equipment is expected
to be recoverable in the ordinary course of
business.
PPE and related depreciation are Presentation and disclosure
appropriately presented in the financial
statements and adequate disclosures made of
(1) the basis of valuation, (2) major classes of
PPE, (3) depreciation methods, (4) amounts
of capitalized leases, (5) capitalized interests,
and (6) PPE that are pledged or subject to
liens.
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 Working
Performed
Paper
By
Reference
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 PPE and
related depreciation showing the following information:
a. Classification of major classes of property such as
land, buildings, furniture and fixtures, machinery
and equipment, leasehold improvements,
construction in progress, and leased property under
capital leases.
b. Asset balances at the beginning of the year.
c. Asset additions during the year.
d. Retirements and disposals during the year.
e. Other changes during the year (e.g., transfers,
reclassifications)
f. Asset balances at the end of the year.
g. Depreciation methods and estimated depreciable
lives.
h. Accumulated depreciation balance at the beginning
of the year
i. Current-year additions to accumulated depreciation
accounts
j. Current-year reductions of the accumulated
depreciation accounts
k. Other current-year changes to the accumulated
depreciation accounts, (e.g., transfers,
reclassifications)
l. Accumulated depreciation balance at the end of the
year
3. Trace balances at the beginning of the year for asset
balances and accumulated depreciation balances per the
summary schedule of PPE in Step 2 above to ending
balances per the prior years’ working papers.
4. Obtain from the client or prepare a listing of all property
additions for the current period in support of the asset
additions balance in Step 2c above, showing (a)
description of the asset, (b) whether the item is new or
used, (c) date the asset was acquired or placed in service,
(d) cost of the asset, (e) estimated depreciable useful life,
and (f) reference number such as vendor invoice date,

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 check number, purchase 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
b. Determine if the acquisition was properly
authorized by reference to the minutes of meetings
of the Sangguniang Bayan, capital expenditures
budget, or other sources.
c. Substantiate the asset’s cost by examining
supporting documentation such as vendor invoices,
purchase contracts, work orders and job status
reports (for construction in progress), deeds (for real
property), or certificates of ownership.
d. For significant property acquisitions, consider
inspecting the asset.
e. For property additions that represent revaluations of
fixed assets, determine whether (1) the revaluation
was made in accordance with the decision of the
government and (2) the calculations were made in
accordance with IAS 16.
f. If interest on borrowed funds is capitalized and
included in the carrying value of fixed assets, as
allowed by IAS 23, perform the following:
•Recompute the amount of interest capitalized.
•Determine whether the amount of interest
capitalized is limited to the portion of total interest
incurred that could have been avoided if the asset
had not been acquired.
5. Prepare or obtain from the client a listing of all property
retirements and disposals for the year in support of the
total balance in Step 2d above, showing (a) description of
the asset retired or disposed of, (b) date sold or disposed
of, (c) date the asset was initially acquired, (d) asset cost,
(e) accumulated depreciation, (f) net carrying amount,
(g) cash or consideration received, (h) net gain or loss.
Select asset disposals for testing and perform the
following procedures:
a. Determine if the disposition of the asset was
properly authorized by reference to such sources as
minutes of meetings of the Sanguniang Bayan.
b. Inquire if any of the sales of the fixed assets were in
connection with sale/leaseback transactions. If yes,
determine the proper accounting treatment.
c. Determine if depreciation was calculated correctly
through the date of disposal.
d. Trace the asset cost and the acquisition date to the
prior-period working papers or property records.
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 e. Substantiate cash or consideration received by
examining remittance advices, bank deposit tickets,
bills of sale, notes executed, etc.
f. Recompute gain or loss on disposal and agree the
amount to the expense/revenue account.
g. Scan revenue accounts for significant proceeds from
the sale of assets.
6. Review and test depreciation calculations as follows:
a. Review depreciation methods and depreciable lives
used and determine if they are in accordance with
IAS and consistently used. Ask the client about any
changes in methods and procedures since the prior
period.
b. Perform analytical procedures of provision for
depreciation for the current period by comparing it
to the prior period, taking into consideration
estimated useful lives. If material, recompute
depreciation expense for individually significant
items on a test basis.
c. Scan the detailed asset listing to determine if the
useful lives are reasonable, and if depreciation
methods are in accordance with IAS.
d. Reconcile provision for depreciation as shown in the
summary of property and equipment in Item 2 above
to the general ledger
7. If repairs and maintenance expense account balances are
material, scan the general ledger activity and examine
supporting documentation on a test basis to determine
whether the amounts should have been capitalized.
8. Obtain from the client, or prepare, a summary of all
leases in force, and perform the following procedures to
determine if the leases should be capitalized based on
criteria in IAS 17:
a. Examine new lease agreements and amendments to
existing leases and determine whether they are
properly accounted for in accordance with IAS 17
(i.e., finance leases, operating leases, etc.), giving
adequate consideration to the following:
(1) Review the reasonableness of the interest rate
used to discount the lease obligation.
(2) Determine whether the client properly
considered noncapitalizable costs, such as taxes,
insurance, and maintenance in computing the
amount of lease cost capitalized.
(3) Review the reasonableness of the method and
period for amortization of capitalized leases.
(4) Test lease payments.
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 (5) Test the computations of current maturities.
b. Consider obtaining confirmations from the lessor of
pertinent details of significant lease agreements,
including compliance with restrictive covenants.
9. Using information obtained in the above procedures and
based on inquiry of the client, ascertain the following:
a. Whether assets that are fully depreciated remain in
service or have been retired from service.
b. Whether the net carrying values of property and
equipment are recoverable in the ordinary course of
business, and whether the remaining useful lives of
the assets are reasonable.
c. Whether property and equipment is idle or held for
sale and, if so, whether such assets are identified and
classified separately from property and equipment
currently used in operations.
d. Whether any property and equipment is pledged or
subject to liens or encumbrances.
e. Whether property and equipment and related
depreciation are appropriately presented in the
financial statements with adequate disclosures.
10. Perform the following analytical procedures for property
and equipment and investigate any significant
fluctuations or deviations from the expected balances:
a. Compare the current year’s account balances with
the prior year’s account balances.
b. Compare the details of actual capital expenditures
with the capital budget.
11. Evaluate whether any events or changes in circumstances
have occurred indicating that the carrying amount of
assets may not be recoverable and whether an
impairment loss should be recognized in accordance with
IAS 36, Impairment of Assets.:
a. Consider the existence of conditions such as the
following which may indicate that an asset has been
impaired:
(1) A significant decrease in the market value of the
asset, particularly in the case of assets held for sale
or expected to be sold in the near future.
(2) A significant change in the extent or manner in
which an asset is used or a physical change in an
asset, such as a significant decline in the use of
certain machinery and equipment or physical
damage to an asset.
(3) A significant adverse change in legal factors or
in the business climate that could affect the value of

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 an asset or an adverse action or assessment by a
regulator.
(4) An accumulation of costs significantly in excess
of the amount originally expected to acquire or
construct an asset.
(5) A current period operating or cash flow loss
combined with a history of operating or cash flow
losses.
(6) A projection or forecast that demonstrates
continuing losses associated with an asset used for
the purpose of producing revenue.
b. Determine if an impairment loss should be
recognized (an impairment loss should be
recognized if the carrying amount of an asset
exceeds estimated future cash flows undiscounted
and without interest charges).
c. If an impairment loss should be recognized, test the
calculation of the loss as follows:
(1) Determine that the impairment loss is measured
as the amount by which the carrying amount of the
asset exceeds its fair value.
(2) Test the fair value by vouching to quoted market
prices, if available, or by reviewing the valuation
techniques used by management.
(3) If the fair value is based on the present value of
estimated future cash flows, test for mathematical
accuracy and ensure that the assumptions used in
the present value calculation are reasonable.
12. If the auditor is concerned about the risk of fraud, audit
procedures such as the following should be considered in
addition to the ones listed above:
a. Physically inspect significant assets and major
additions, and agree serial numbers with invoices or
other supporting documents.
b. Carefully scrutinize appraisals and engineering
reports that seem out of line with reasonable
expectations, and challenge the underlying
assumptions.
c. When vouching fixed asset additions, accept only
original invoices, purchase orders, receiving
reports, or similar supporting documentation.
d. Confirm selected fixed asset additions directly with
the vendor.
e. Review journal entries made to property accounts.
f. For self-constructed assets, examine supporting
documents for labor, materials, capitalized interest,

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 and other direct and indirect costs included in the
capitalized asset.
g. Perform extensive depreciation calculations.
h. Examine miscellaneous cash receipts records and
other income accounts for evidence of proceeds
from fixed asset disposals.

Based on the procedures performed and the results obtained, it is my opinion that the objectives
listed in this audit program have been achieved.

Performed by: Date:

Reviewed and approved by: Date:

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