AUDIT EVIDENCE BY GROUP 3

GROUP 3

NUR AINA BINTI NOR ANUAR 10DAT19F1006

AULA QISTINA BINTI JOHARI 10DAT19F1042

NUR AISYAH FATHIHAH BINTI ROPIEE 10DAT19F1048

MADURITA KRISHNAN 10DAT19F1054

WAN NUR AIN BINTI MOHAMAD RASHID 10DAT19F1084

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INTRODUCTION

Assalammualaikum and Selamat Sejahtera

Hello everyone, we are from class DAT5A group 3. We got a task of mini project for DPA50153 from our lecturer, En Mohd Hafiz. So we were asked to answer some questions about topic Audit Evidence.

What is Audit Evidence?

Auditing evidence is the information collected for review of a company's financial transactions, internal control practices and other other items necessary for the certification of financial statements by an auditor or certified public accountant (CPA). The amount and type of auditing evidence considered vary considerably based on the type of firm being audited as well as the required scope of the audit.

Here the questions.

1. List four categories of intangible assets and four types of property, plant, and equipment transactions.

What Is an Intangible Asset?

An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.

Intangible assets are assets that lack physical existence. Examples of intangible assets include: Goodwill, Patents, Brand, Copyrights, Trademarks, Trade secrets, Licenses and permits, Corporate intellectual property

Property, plant, and equipment (PP&E) are a company's physical or tangible long-term assets that typically have a life of more than one year.

Examples of PP&E include buildings, machinery, land, office equipment, furniture, and vehicles.

Companies list their net PP&E on their financial statements

VIDEO REFERENCE

2. Describe two or more factors that the auditor should consider in assessing the inherent risk for:

(a) intangible assets

1.Ownership problem

2.Correct valuation

3.Technological advance

4.Change in culture

(b) the property management process

There are three inherent risk factors that must be considered by the auditor

1) Complex accounting issues
Complex accounting transactions which include:
  - Debt modification
  - Stock-based compensation
  - Foreign currency
Business can deal with complex accounting issues by hiring accounting firms. There are firms which have specialized in taxation and accounting issues. The companies can offer business with right solutions to the complex accounting issues.

2) Difficult to audit transactions
When assets are purchased directly from a vendor, the transaction is relatively easy to audit. However, transaction involving donated assets, nonmonetary exchanges, and self-constructed assets are more difficult to audit.

3) Misstatement detects in prior audits
If misstatements in prior audits have been detected, the auditor should set inherent risk higher than if few or no misstatements have been found in the past.

3. What is a typical control over authorization of capital asset transactions?

Controls over capital assets should be sufficient to provide reasonable assurance that capital asset system objectives are demonstrated. Controls over capital assets should include:

• Transaction controls over capital asset records, including asset additions, deletions and changes in custody
• Reconciliations between capital asset records
• Periodic inventories
• Reviews of impairment
• Periodic re-evaluation of useful lives

Transaction controls
Each time the local government acquires or disposes of a capital asset, transfers an asset between locations, charges depreciation expense or makes an adjustment, an entry must be made on to the capital asset records. Internal controls must be established to ensure that these transactions are properly and promptly recorded.

Reconciliation controls
To the extent the government maintains separate capital asset lists for different purposes, these lists should be regularly compared and reconciled. In addition, related accounting records and external reporting should also be regularly compared and reconciled, as applicable. Reconcile capital assets transferred to other locations, custody or funds with capital assets transferred from other locations, custody or funds.

Physical inventory
A periodic physical inventory of the capital assets is necessary to verify that the assets still exist, confirm the location and other information of assets and provides updates on the condition of the assets. This information demonstrates that the local government is exercising its custodial responsibility for the asset and is beneficial when establishing an insurance claim because it substantiates both the existence and the condition of the asset near the time of loss or damage.

Review of impairment
Indicators of possible impairment:

• Evidence of physical damage – such as an office building damaged in a storm
• Changes in legal or environmental factors – such as an underground storage tank that is no longer usable due to changes in environmental standards
• Technological changes or obsolescence – such as medical equipment that still can be used, but for which the demand is expected to significantly decrease with the advent of more attractive treatment options
• Changes in manner or duration of use – such as a school building being used as a warehouse
• Construction stoppage – legal or practical reasons may cause to abandon a construction project, such as a road construction that threatens the habitat of endangered species

Periodic re-evaluation of useful life

Revaluation model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. [IAS 16.31]

Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31]

If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS 16.36]

Revalued assets are depreciated in the same way as under the cost model.

If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit or loss. [IAS 16.39]

REFERENCE 1

REFERENCE 2

CONCLUSION

Intangible Asset

- Intangible Asset are identifiable ,non- monetary assets without physical substance

- IAS 38

- Objective to prescribe the accounting treatment for intangible asset that are not dealt with specifically in another IFRS

Property, plant and equipment

- PPE are a company’s physical or tangible long term assets that typically have a life of more than one year

- IAS 16

- Objective to prescribe the accounting treatment for property, plant and equipment

POP QUIZ  Click Here

1. Which of the following is not known as intangible asset

a) Goodwill

b) Patent

c) Research & development

d) Furniture & fitting

2. Which of the following is inherent risk factor for property management process?

i) Complex accounting issues

ii) Change in culture

iii) Difficult to audit transaction

iv) Misstatements detect on prior audits

a) i, ii, iii

b) i, ii and iv

c) i, iii, iv

d) ii, iii, iv

3. The following are factor assessing inherent risk for intangible asset

i) Change in culture

ii) Expertise and experience

iii) Technological advancement

a) True

b) False

4. Controls over capital assets should include:

i) Transactions controls

ii) Reconciliation controls 

iii) Physical inventory 

iv) Reviews of impairment 

a) i and ii

b) ii and iii

c) i, ii and iv

d) All above

5. Change in legal or environment factors is one of the 5 indicators of possible impairment.

a) True

b) False