Auditing property, plant and equipment
Testing property, plant and equipment by assertion: vouching additions and disposals, inspecting assets, depreciation reasonableness and the register.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Property, plant and equipment rarely produces dramatic findings, which is why it is easy to audit on autopilot: roll forward last year's lead schedule, vouch a few additions, recompute depreciation and move on. Yet for a manufacturer, a transport operator or a farming client, it is often the largest number on the statement of financial position, and the errors in it are quiet ones. A delivery vehicle sold years ago still on the register. A roof replacement expensed as repairs. Useful lives nobody has reviewed since the business started.
A sound approach starts from the assertions and lets them decide the work, rather than starting from the lead schedule and testing whatever is on it.
Risks by assertion
| Assertion | What can go wrong | Typical response |
|---|---|---|
| Existence | Assets on the register that were sold, scrapped or never existed | Inspect a sample selected from the register |
| Completeness | Assets acquired but expensed, or not recorded | Review repairs and small-tools accounts; trace from floor to register |
| Rights and obligations | Assets used but not owned, or pledged as security | Title deeds, vehicle registration papers, loan agreements |
| Accuracy and valuation | Wrong cost, unreasonable depreciation, unrecognised impairment | Vouch cost, test depreciation, consider impairment indicators |
| Classification | Repairs capitalised, or capital items expensed | Read invoices for the nature of the work |
The emphasis shifts with the client. For a business that has just invested heavily, additions and their classification matter most. For a mature business with old assets, existence and depreciation do.
Vouching additions and disposals
For additions, the questions are whether the asset exists, whether the client owns it, whether the cost is right and whether it is capital at all. Vouch a sample to supplier invoices and, for larger items, to contracts, delivery documents and board approval. Read the description: an invoice for "repairs to roof" may be a replacement that extends the asset's life, or routine maintenance that should be expensed.
Completeness of additions is tested from the other side. Scan the repairs, maintenance and consumables accounts for items large enough or durable enough to be capital.
For disposals, agree proceeds to the sale agreement and the bank statement, confirm the asset was removed from the register at its cost and accumulated depreciation, and recompute the profit or loss. Ask about assets that were scrapped without proceeds; these are the ones most often left on the register.
Where the client keeps its fixed-asset register on Achekam, assets are added at cost, depreciated monthly by straight line or reducing balance with a journal each month, and disposed of with the profit or loss posted. Tax wear-and-tear is not worked out there, and the register is not part of Business Essentials, so check what the client actually uses before planning to rely on it.
Inspecting selected assets
Physical inspection gives direct evidence of existence and, often, of condition. Select from the register and find the asset; then select assets on the floor and trace them back to the register for completeness. While inspecting, note anything that suggests impairment: idle machines, damaged vehicles, buildings partly unused.
The selection is a sample like any other. Monetary unit sampling suits the existence test, because it favours high-value assets, which are the ones whose overstatement matters most. In Achekam's Audit Intelligence, the team loads the register as a population, Achekam risk-scores it and proposes a sample, and a reviewer who did not prepare the plan approves it before the draw. Every draw can be reproduced from its stored seed. Choosing between methods is discussed in random, systematic or monetary unit sampling.
Testing depreciation for reasonableness
Depreciation is usually best tested analytically first. For each class, build an expectation from the opening cost, additions and disposals and the client's rates or useful lives, and compare it with the charge. A close result is good evidence; a gap needs explaining.
Then look beyond the arithmetic:
- Are useful lives and residual values still realistic? Fully depreciated assets still in daily use suggest lives are too short.
- Has the method changed, and if so, is it accounted for as a change in estimate?
- Do assets under construction start depreciating only when available for use?
Achekam does not calculate depreciation for the financial statements. It presents the depreciation in the trial balance, flags when the charge does not agree with the movement in accumulated depreciation, and lets staff post a year-end adjusting entry. A wrong adjusting entry is reversed with a record of who and why, never deleted. Treat the flag as a prompt to investigate, not as the test itself: a charge that agrees with the movement can still rest on unreasonable lives.
Agreeing the register to the lead schedule
The register, the lead schedule and the trial balance must tell the same story. Agree the register's closing cost and accumulated depreciation by class to the lead schedule, and agree the lead schedule to the trial balance.
In Achekam, lead schedules are built from the engagement's trial balance with each figure traceable to its lines. Staff can record an audit adjustment on a line with a reason, and findings can be raised from a working paper and closed or withdrawn. If the register and the ledger disagree, raise the finding on the paper where it was found, so the adjustment and its reason sit with the evidence.
On each work item, a procedure is marked done only with a written response and its documents, or set aside with a reason; steps are never deleted. A response such as "inspected every asset selected by monetary unit sampling; all located and in use; damage to the forklifts noted for impairment consideration" leaves the reviewer nothing to guess.
A short PPE checklist
- Map the work to assertions before opening last year's file.
- Vouch additions for cost, ownership and capital nature.
- Scan repairs and expense accounts for unrecorded additions.
- Confirm disposals were removed and the profit or loss is right.
- Inspect a sample from the register, and trace assets from the floor back.
- Test depreciation analytically, then challenge lives and residual values.
- Agree register, lead schedule and trial balance.
IAS 16's principles for recognising PPE, measuring its carrying amount and working out depreciation and impairment are summarised on the IFRS Foundation's IAS 16 page; clients on IFRS for SMEs apply Section 17 instead. How the audited figures flow into the note is covered in the property, plant and equipment note.
The question to bring to the next client
Ask the client which assets were scrapped or given away during the year without being sold. The answer usually finds the disposals the register never heard about.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
