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Audit substantive procedures for non current assets.

Asset is resource controlled by an entity as the results of past events and from which future economic benefits are expected to flow to the entity. A non current asset is the asset that is unlikely to turn into unrestricted cash within one year of statement of financial position date.

The following substantive procedures should be applied for verification of non current assets.
For all non current assets generally:

  • Check all opening balances with previous year’s audited balances
  • Verify the additions to the assets with the purchases invoices
  • Check additions of self constructed assets with the purchase invoices of materials, cost allocations for labor and overhead costs
  • Verify the additions with the approval of board of directors
  • Verify depreciation rates and re perform calculations on the test basis
  • If there are any disposals, check the authorization to sell and the accounting for the sale
  • Check whether the assets are adequately insured
  • Verify the accounts where the misposting are possible for example the repair account which may contain an item of asset erroneously recorded
  • Physically inspect a sample of assets to check for the existence
  • Verify the classification of assets
  • Check whether there is any impairment loss that need to be provided for. 

For the non current assets revalued at fair values, the following additional steps are needed:

  • Confirm that all the similar assets are revalued 
  • Check that the increase in value is credited to revaluation surplus
  • Check whether the difference between the depreciation on cost and the depreciation of the revalued amount is transferred to statement of other comprehensive income, being the realized profit
  • Verify the new valuation with valuer’s report
  • Verify if the correct disclosure are made on revaluation policy, name of the valuer and so forth

For the company non current asset obtained on lease the following additional steps are required

  • Inspect the lease agreement
  • Determine the type of lease agreement that is whether it is finance or operating lease
  • Check whether the balance of the lease liability at the reporting period matches the balance shown by the lease finance company, and that it is disclosed correctly in the financial statements
  • Check if only assets acquired on finance lease are shown as asset of the entity acquiring the assets and if they are depreciated as per entity’s depreciation policy
  • Check whether payments on accounts of operating lease are treated as expenses

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