AUDIT OF PROPERTY, PLANT

AND EQUIPMENT, AND THE

RELATED DEPRECIATION
AND DEPLETION
 What is Property, Plant and
Equipment?
The term PPE include all tangible assets with a
service of life more than one year that are used
in the operation of the business and are not
acquired for the purpose of resale.
The major subgroups of such assets
are generally recognized:
• Land – has the significant characteristics of
not being subject to depreciation.
• Building, machinery, equipment, and land
improvements – have limited service lives
and are subject to depreciation.
• Natural Resources(wasting assets) – are
subject to depletion as the natural resources
are extracted or removed.
R em e m b e r !
Even when the assets are classified separately,
the audit approach is generally the same for
property and equipment.
The essential features of substantive testing of
balances for PPE are emphasis on specific audit
objectives related to existence, ownership and
valuation achieved primarily by substantiating
additions and identifying retirements during the
period and verification of depreciation and
depletion (if any) expense.
AUDIT OBEJECTIVES AND PROCEDURES
 Discussion of Audit Procedure
1. Obtain or prepare a summary of property and
equipment transactions and analysis of the
accumulated depreciation during the year and
reconcile the ledger.

2. Conduct physical inspection of the major

acquisitions of property and equipment.
3 & 4. Vouch additions to property during the
year. Investigate disposals and retirements.

5&6. Examine legal ownership of property and

equipment.

7. Review rental revenue from land, buildings

and equipment owned by the client and leased
top others.
8. Analyze repairs and maintenance account.

9. Investigate status of property and equipment

not in current use.

10. Test client’s computation of depreciation.

11. Perform analytical procedures for property

plant and equipment.
12. Evaluate financial statements presentation
and disclosure for property and equipment,
accumulated depreciation and related revenue
and expenses accounts.

Disclosure is also required for the following:

a.) Basis of valuation
b.) Property pledged to secure loans
c.) Property not in current use
 AUDIT OF NATURAL RESOURCES
In the audit of companies’ operation properties
subject to depletion, the auditor follow pattern
similar to that used in evaluating the provision
for depreciation expense and accumulated
depreciation.
The determination of physical quantities to
use as a basis for depletion is more difficult
in many mining ventures and for oil and
gas deposits. The auditor often rely upon
the opinions of such specialist.
Under these circumstances, the auditors must comply with
requirements of the professional standards on the use of
specialists:

If the number of tons of ore in a mining property

could be accurately determined in advance, an
exact depletion cost per ton could be computed
by dividing the cost of mine by the number of
tons available for extraction. In reality, the
contents of mine can only be estimated, and the
estimated may require revision as mining
operations progress.
The auditors investigate the ownership and the
cost of mining properties by examining deed,
leases, tax bills, vouchers, paid checks, and other
records in the same manner that they verify the
plant and equipment of a manufacturing or
trading concern.
• The costs of exploration and development
work in mine customarily are capitalized until
such time as commercial production begins.
• After that date, additional development work
generally is treated as an expense.
 Members:
• Fernandez, Jenie Jane
• Genilsa, Rosenie
• Mijares, Mary Joy
• Mosquera, Rey Jay
• Tronco, Khey