(a) Main risks associated with financial statement assertions relating to fixed assets

Rights (Ownership)
 Assets which are not controlled by the entity may have been recorded in the books of
accounts, for example assets sold under hire purchase or finance lease, are legally owned
by the entity but are not under the control of the entity. Also assets bought under hire
purchase or finance lease should be capitalized as they are under the control of the entity.
Existence
 Assets which were disposed during the year may still be in the books of accounts at the
end of the year, thus verification of existence of assets are the year end is important. For
example an asset that has been replaced is discarded due to its lack of value, without an
accounting entry.
Completeness
 Assets acquired during the year may not have been recorded in their proper non-current
assets account. For example Purchases of equipment erroneously reported in maintenance
and repairs expense account.
 Assets acquired by the entity may not have been recorded in the books of accounts
Valuation and allocation
 Non-current may not have been recorded at their net book value (Cost less accumulated
depreciation).
 Miscalculation in depreciation and inappropriate depreciation rate.
 Revaluations not accounted for properly
 Expenditures for repairs and maintenance expenses recorded as property, plant, and
equipment acquisitions.

(b) Sources of evidence in verifying rights (Ownership) and cost

i. Land and Buildings.
Ownership - Title deeds, Land registry certificates, Purchase documents
Cost – Purchase documents, Valuation certificates, Cash book
ii. Computers
Ownership -Purchase Invoices
Cost – Purchase Invoices
 iii. Motor Vehicles
Ownership - Vehicle registration document, Insurance premium documents
Cost – Purchase documents
(c) appropriateness of the depreciation rates
Confirm the reasonableness of these changes, by comparing the revised depreciation
rates, useful lives and methods applied to PPE to industry averages and knowledge of
the business.
 Obtain details about the accounting policies of the client about
depreciation rate for this group of non-current assets (Land and buildings).
 Confirm against last year’s financial statements that there have been no
changes to these policies.
 If there was a change check, whether the international financial reporting
standards relating to changes in accounting estimates have been adhered
 Confirm the reasonableness of the depreciation rate.
Asses management’s process arriving to the rate being used, including the
factors which have been taken into account to arrive to such rate. For
example, the replacement policy for the asset, the pattern of usage in the
business and the purpose of the asset being owned
(d) Action when auditor disagrees with depreciation rates.
Communicate with those charged with governance on that matter and, in case there is still a
disagreement . If such disagreements are material to the financial statements, the auditor should
express a qualified or an adverse opinion.
2. Reasonableness test
Reasonableness testing is the analysis of account balances or changes in account balances within
an accounting period in terms of their “reasonableness” in light of expected relationships
between
accounts(Hayes, 2005).
In reasonableness test, an auditor computes an explicit expectation for the financial statement
amount using financial or non-financial data (Whittington & Pany, 2016).
For example, using the number of employees hired and terminated, the timing of pay changes,
and the effect of vacation and sick days, the model could predict the change in payroll expense
from the previous year to the current balance within a fairly narrow dollar range.