What type of audit procedures can we use to test depreciation expense?
Audit procedures that auditors normally perform in an audit of depreciation expenses include recalculation of depreciation expenses, analytical review, an inspection of fixed assets addition, an inspection of fixed assets disposal, review the depreciation method, and useful life of assets.
How analytical procedures are used as substantive procedures?
Analytical procedures are used as substantive procedures when the auditor considers that the use of analytical procedures can be more effective or efficient than tests of details in reducing the risk of material misstatements at the assertion level to an acceptably low level.
What is a substantive test of detail?
Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors. These tests are needed as evidence to support the assertion that the financial records of an entity are complete, valid, and accurate.
How do you perform a substantive test?
The following list is a sampling of the available tests:
- Issue a bank confirmation to test ending cash balances.
- Contact customers to confirm that accounts receivable balances are correct.
- Observe the period-end physical inventory count.
- Confirm the validity of inventory valuation calculations.
How do you perform the substantive analytical procedures for depreciation?
Like other accounts, we usually perform the substantive analytical procedures for depreciation by starting with building our expectations; and then we compare our expectations with the client’s record.
What are substantive analytical procedures in audit?
Likewise, substantive analytical procedures are the audit procedures that auditors perform to obtain evidence about the reasonableness of amounts shown in the financial statements by using such plausible relationships among data. Substantive analytical procedures are usually performed when the risk of material misstatement is low
How do you audit depreciation?
When we determine that the risk is low and the client has proper internal control on fixed assets and depreciation, we usually audit depreciation by performing substantive analytical procedures.
How to test the details of fixed assets for depreciation?
In this case, we usually perform the test of details by selecting a sample of depreciation recorded in the general ledger and perform the recalculation procedure. Obtain fixed assets register or listing containing all important information including fixed assets cost, estimated useful life, residual value and depreciation method.