B) Sources of Evidences in Verifying The Ownership and Cost of The Following Assets

a) Main risk associated with financial statement assertions relating to fixed asset.
i. Overstating of fixed assets.

This can happen when its value is added with some items such as tools associated
with the operations of the fixed assets which are practically wrong added to
balance sheet while it could deducted from income statement as expenses
regarding to available fixed assets.
ii. Risk of existence of non-existence.

An asset can be under depreciated so that it can have a longer useful life; in doing
that it means giving an asset the value which no longer exists. Sometimes a
company may have some impairment on the asset hence overvaluing it in such a
way that its value no longer exists.
iii. Incorrect Depreciation rate and calculation.

Depreciation rate is normally decided by management. In some cases,
management might intend to manipulate the depreciation rate to get the
depreciation expenses based on what they want. The auditor needs to ensure that
the assessment of the depreciation rate is performed. The rate should be based on
the expected useful life, as well as the capacity of assets.
iv. Misstatement of value on the financial statements.

This is the risk which is associated with the recording of the value of asset in the
financial statements; it occurs sometimes due to the inefficiency system in the
company internal control, hence there may be some errors in the process of
recording an asset.
b) Sources of evidences in verifying the ownership and cost of the following assets;
i. The land and buildings

 Ownership
1) Purchase documents
2) Documents of tittle
3) Insurance contracts
4) Other cost associated by the ownership of land and buildings.
 Cost
2) Documents related to tax payable during transfer of land and buildings
ii. The computers
 Ownership
2) Security codes
 Cost
2) Cash records
iii. Motor vehicles

 Ownership
2) Documentation of the tax payable
 Cost
2) Insurance documents
c) Procedures to follow when checking the appropriateness of the depreciation rates in

each of the three categories of the fixed asset;
1. Review of the depreciation rates and accounting policy.

An assessment should be done on the reasonableness of depreciation policy that
the entity has applied to the class of each assets. The rate should be consistent and
against the rate provided by the tax authority.
2. Recalculation of depreciation expense.

This is normally done to recalculate the depreciation expenses prepared by
accountants in their depreciation schedule. Once the calculations are completed,
then followed by comparison of results to client results. If depreciation rates are
high, there is possibility that large number of written down assets in the fixed
asset register which are still in use.
3. Reviewing of accounts.
Take a time and have some reviews on the accumulated depreciation as shown on
the firm’s balance sheet. As described earlier depreciation charges are non-
monetary but they do have effects in the value of an asset and its useful life. Then
check the amount shown in the expenses side on the income statement to if they
are shown as calculated earlier; if they’re not shown, then its book value will also
have some doubt.
4. Reconciliation of depreciation rates.
Depreciation expenses recorded the income statements should be reconciled with
the expenses calculated in the depreciation schedule. The auditor should reconcile
this, and if they are not reconciled, the explanation should be obtained from
management.
5. Test the reasonableness.

This procedure is linked to the recalculation procedure. For example, auditors
perform depreciation expenses recalculation and then project the expenses into the
whole years once auditors did the whole year projection, then auditors could
compare their own calculation with the entity accountants reports.
d) Actions to be taken if there is disagreement with any of the depreciation rates used;
 Installation of Standard programmed algorithms that perform depreciation

calculations in SAP (system application and product).
 Regularly review depreciation and other calculations performed by the SAP
system for accuracy.
 Making sure depreciation exception items are consistently identified,
monitored, and corrected prior to asset disposition and all transactions should
be reviewed, verified and approved by management.
REFERENCES.
Killagane, Yona S.M, (2006), Study Guide for Financial Accounting for
Professional Students – Vol 1&2
Msongole A, and Barden G, et al (2010) Contemporary Issues in Accounting 2nd

ed.,, Thrust Publications

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a) Main risk associated with financial statement assertions relating to fixed asset.

i. Overstating of fixed assets.

ii. Risk of existence of non-existence.

iii. Incorrect Depreciation rate and calculation.

iv. Misstatement of value on the financial statements.

i. The land and buildings

iii. Motor vehicles

c) Procedures to follow when checking the appropriateness of the depreciation rates in

1. Review of the depreciation rates and accounting policy.

2. Recalculation of depreciation expense.

5. Test the reasonableness.

 Installation of Standard programmed algorithms that perform depreciation

Msongole A, and Barden G, et al (2010) Contemporary Issues in Accounting 2nd

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