AUDIT VERIFICATION – NON-CURRENT ASSETS

AUDIT VERIFICATION – NON-CURRENT ASSETS

CHAPTER OBJECTIVE

1. NON-CURRENT ASSETS
2. COST OR VALUATION
3. LEASE AND NON-DEPRECIATION OF NON-CURRENT ASSETS
4. VERIFICATION PROCEDURE

1. NON-CURRENT ASSETS

Non-current assets are those assets which are held for continuing use in the business and are not intended for resale.
Non-current assets can be analysed as follows.
1. Intangible- have no physical existence. E.g. patents, licences, development costs and goodwill.
2. Tangible- possess a physical existence. E.g. land and building, plant, fixtures and fittings.
3. Investments- generate non operating income and growth in capital value. E.g. loans, shares held in other companies. Own more than 50% of the ordinary share capital of another company, called subsidiary, but between 20% and 50% called associate.

2. COST OR VALUATION

 Tangible non-current assets in the statement of financial position at either cost or revaluation.
 If the assets are revalued the surplus on revaluation, credited direct to a revaluation reserve.
 There is an impairment (fall) in value in which case the asset must be written down. Debit is made in the income statement/statement of comprehensive income, but it can be taken to revaluation reserves in certain circumstances.
 Depreciation of revalued assets should be based on the revalued amount and current estimates of useful life.

3. LEASE AND NON-DEPRECIATION OF NON-CURRENT ASSETS

Lease:
There are two types of lease, a long-term finance lease and a shorter-term operating lease.
Non- Depreciation of Non-Current Assets:
 Hotels and supermarkets are constantly maintained and residual values are higher than cost and has an indefinite useful life (e.g. 500 year-old), but refurbishment costs are expense in lieu of depreciation.
 Investment properties, i.e. land and buildings which are held for rental and investment purposes, rather than held as operating assets of the enterprise, not depreciate, but revalued to market value.

4. VERIFICATION PROCEDURE

Remember that verification procedures are designed to support the key financial statement assertions of:
1. Completeness – test some physical assets to ensure they are recorded.
2. Occurrence- sample of invoices, contracts, finance leases or other evidence of title to assets.
3. Valuation and allocation- ensure that sale tax is appropriately capitalised where it is not recoverable.
4. Existence- physically inspect a sample of assets
5. Rights and obligations- sample of invoices, contracts, finance leases or other evidence of title to assets.
6. Accuracy-recorded appropriately
7. Classification and understandability – value of assets held under finance lease is disclosed separately.

Source:

1. Kaplan, FAU
2. Phnom Penh HR