ACCA F8 - Audit and Assurance Revision Kit 2016

(b)
Financial statement assertions for non-current assets
Completeness
The amounts stated in the statement of financial position for non-current assets must represent all noncurrent
assets used in the operations of the entity. Significant omissions could have a material effect on the
financial statements. Where an entity has lots of small capital items, recording and tracking these can be an
issue so good controls are important.
Existence
Recorded assets must represent productive assets that are in use at the reporting date. Where assets have
been disposed, they must not be included in the statement of financial position. Items that are susceptible to
misappropriation can also present issues.
Accuracy, valuation and allocation
Non-current assets must be stated at cost or valuation less accumulated depreciation. Whether an entity has
a policy or not of revaluing certain categories of its non-current assets can have a material effect on its
financial statements. The depreciation policy in place must be suitable as this can also have a significant
bearing on asset values on buildings and larges items of plant and equipment.
Rights and obligations
This is a key assertion for non-current assets because the entity must own or have rights to all the recorded
non-current assets at the reporting date. For example, where an asset is leased by the entity, it may not have
substantially all the risks and rewards associated with ownership and therefore should not recognise the
asset on its statement of financial position.
Classification
Tangible assets should be recorded in the correct accounts, and expenses which are not of a capital nature
are taken to profit or loss.
Presentation
Non-current assets must be disclosed correctly in the financial statements. This applies to cost or valuation,
depreciation policies and assets held under finance leases.
(c)
Evidence available
Asset Ownership Cost
Land and
Buildings
Title deeds. These may be held at the
bank or the client's solicitors.
It may be possible to obtain
confirmation of ownership from the
central land registry office.
The insurance policy should be
reviewed to see whom the cover is in
favour of.
The cost of the land and building can be
traced to original invoices.
The company may also have retained the
original completion documents from the
solicitor on the purchase of the land.
(d)
Procedures re depreciation
The purpose of depreciation is to write off the cost of the asset over the period of its useful economic life.
(i)
Buildings
To assess the appropriateness of the depreciation rate of 5%, the auditor should:
Consider the physical condition of the building and whether the remaining useful life
assumption is reasonable
Review the minutes of board meetings to ensure there are no relocation plans
Consider the budgets and ensure that they account for the appropriate amount of
depreciation. If they do not, they may give an indication of management's future plans.
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