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Property Plant and Equipment - DOC

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					                                 Audit Work Program – Property and Equipment
                                   Subsidiary/Department:
                                               Date:


AUDIT OBJECTIVES:

To determine whether:

1.   Property, plant and equipment represent all tangible assets owned or held under capital lease that are used in the
     entity's operations or are under construction, and they are properly recorded at cost on a consistent basis.
2.   Additions to property, plant and equipment during the audit period are proper capital charges and represent all
     actual physical property installed or constructed.
3.   The costs and related accumulated depreciation, depletion and amortization amounts applicable to all
     retirements, abandonment, property no longer in service and dispositions have been properly removed from the
     accounts.
4.   Accumulated depreciation, depletion and amortization accounts are reasonable, considering the expected useful
     lives of the property units and expected net salvage values.
5.   The recorded net investment in property, plant and equipment can reasonably be expected to be realized.
6.   Property, plant and equipment and the related accumulated depreciation, depletion and amortization accounts
     are properly described and classified and adequate disclosures (including disclosure of liens and encumbrances)
     with respect to these amounts have been made.

AUDIT PROCEDURES:

                                                                       WP      Done
                            Procedures                                                    By      Date         Comments
                                                                       Ref.    Y/N?

1)   ANALYTICAL PROCEDURES—GENERAL

         a.   Compare the balance of each significant property,
              plant and equipment account with the comparable
              balance for the preceding period. Consider the
              reasonableness of differences in light of budgeted
              capital expenditures, recent acquisitions or
              dispositions of assets or businesses, new product
              lines, anticipated plant closings, discontinuance of
              products, etc.

         b.   Compare the balance of each significant
              accumulated      depreciation,     depletion  and
              amortization account with the comparable balance
              for the preceding period. Consider the
              reasonableness of differences in light of current
              period additions/disposals of property and current
              period provisions for depreciation expense.

         c.   Compute the ratio of accumulated depreciation to
              the related asset accounts for each category of
              property, plant and equipment. Compare the
              computed ratio with the similar ratio for the
              preceding period. Investigate significant or unusual
              variations.

         d.   Assess the reasonableness of the net book value of
              property, based on the remaining depreciable lives
              and estimated net salvage values.

         e.   Compare the balance of each significant
              maintenance and repairs account with the budgeted
              amount and the balance for the preceding audit
           period. Investigate significant fluctuations for
           possible amounts expensed that should have been
           capitalized or amounts capitalized that should have
           been expensed.

4) TESTS OF EXISTENCE

      a.   Tour the client's plant facilities and observe the
           type and condition of property in place. Note any
           excess, unusable or idle facilities.

      b.   Obtain an understanding of the client's policies,
           procedures and controls for performing physical
           inventories of property (e.g., frequency or criteria
           for determining the need for a physical inventory).

      c.   Determine whether a physical inventory of
           property should be taken for one or more
           categories of property. Consider the following:

               Significant categories of property that have
                been moved from one location to another
                during the audit period.
               Significant categories of property that are
                readily moveable, saleable and have a high
                unit value.
               Significant categories of property that are so
                poorly guarded that theft, destruction or other
                physical loss might not be noticed and
                recorded by management.

      d.   Observe the taking of physical inventories of
           selected property categories, noting the adequacy
           of the client's procedures and the condition of the
           property items.

      e.   Prepare a summary memorandum describing the
           basis for selecting locations observed, the
           procedures followed during the observations and
           the principal observations.

           1.   Conclude as to the effectiveness of the
                methods of inventory-taking and the measure
                of reliance that may be placed on the client's
                representations about the quantities and
                physical condition of the property items

      f.   Review the reconciliation of the physical inventory
           to the general ledger balances for property, plant
           and equipment. Determine whether reconciling
           items have been properly accounted for.

4) TESTS OF PROPERTY ADDITIONS

      a.   Discuss with appropriate client personnel the
           approval process as it relates to additions to
           property, including construction in progress.
           Obtain documentation of the various approval
           levels, including authorization for cost overruns on
           construction in progress.
b.   Have the client prepare a schedule listing selected
     additions to the major categories of property during
     the current period. Scope:( )

     1.   Scan the supporting subsidiary ledgers or other
          similar records to ensure that all additions over
          the listing scope are properly included on the
          schedule.

     2.   Note that the descriptions indicated for
          property additions appear to describe items
          that are properly capitalizable under the
          client's accounting policies and relate to the
          client's business.

     3.   Examine critical forms and documents ()
          supporting the amounts of individual additions
          and note approval by the appropriate levels of
          authority. Scope:()

          A. For any real estate additions, examine the
             deed, title abstract, title insurance policy,
             tax bills and other documents evidencing
             ownership.

          B. Determine that the total cost of any plant
             and equipment purchased on an
             installment plan or held under capital
             lease agreements is reflected in the asset
             accounts and that the unpaid obligations
             are accrued as liabilities.

          C. Determine whether old equipment traded
             in or replaced by the new units has been
             removed from the accounts.

          D. Cross-reference       transfers        from
             construction in progress to the analysis for
             that account.

     4.   Have the client prepare a schedule of property
          transfers during the period.

          A. Determine the reason for significant
             transfers from property classifications
             other than construction in progress.
             Determine      whether     the    resulting
             classification is proper and whether the
             depreciation method and key assumptions
             (e.g., economic useful life, salvage value,
             etc.) are appropriate, considering the
             property's new use.

          B. Trace significant amounts transferred to
             detail property records to determine
             whether both the cost and accumulated
             depreciation, depletion or amortization
             have been properly removed from the
             original classification and included in the
             new classification. Consider recomputing
             the amount of accumulated depreciation,
                  depletion or amortization transferred.

         5.   Relate property additions observed during the
              physical inventory observation to the schedule,
              by description.

         6.   Physically observe other significant additions,
              noting that the physical characteristics appear
              to be consistent with descriptions in the
              authorizing documentation and with the
              classification in the accounts.

    c.   Inquire of appropriate client personnel as to the
         existence of significant commitments for the
         purchase of property items as of the balance sheet
         date. Consider the need to disclose such
         commitments in the financial statements.

    c.   Determine the propriety of significant increases in
         property not arising from the acquisition of
         physical assets by reviewing supporting
         documentation and/or through discussion with
         appropriate personnel.

5) TESTS OF PROPERTY DISPOSITIONS

    a.   Have the client prepare a schedule listing selected
         items of property sold, retired, abandoned or
         otherwise disposed of during the current period.
         Include the following information: Scope:()

             Cost or other basis.
             Accumulated depreciation, depletion or
              amortization.
             Net book value at date of removal from the
              accounts.
             Proceeds received, if any.
             Reason for removal from the accounts.
             Gain or loss on the disposition.
             Investment tax credit recapture.

         1.   Scan supporting records to ensure that all
              dispositions over the listing scope are properly
              included on the schedule.

         2.   Tie the cost totals to the summary analysis and
              the totals for accumulated depreciation,
              depletion and amortization, investment tax
              credit recapture and gain or loss to the
              applicable lead schedules or analysis
              schedules.

         3.   For significant dispositions, review the
              supporting subsidiary records and determine
              whether the cost basis and accumulated
              depreciation, depletion or amortization were
              properly removed from the accounts.
              Recompute       accumulated        depreciation,
              depletion or amortization to the disposal date.

         4.   Examine critical forms and documents (         )
              supporting each disposition and note approval
              by the appropriate levels of authority. List any
              related-party sales for further investigation.
              Scope:(     )

         5.   Test the recorded gain or loss on dispositions
              by performing the following: Scope:( )

              A. Compare the cost basis of the property
                 with the subsidiary ledger or other
                 supporting records.

              B. Recompute accumulated depreciation to
                 the disposal date and recompute the gain
                 or loss taking into consideration any sales
                 proceeds and/or cost of disposal.

              C. Trace sales proceeds received to entries
                 recorded in the cash receipts register or to
                 the bank statement.

         6.   Review for unrecorded         dispositions   by
              performing the following:

              A. Inquire of management and operating
                 personnel as to whether plant assets have
                 been sold, retired or abandoned during the
                 year and determines whether noted
                 dispositions were recorded.

              B. Review miscellaneous revenue accounts
                 for proceeds from the sale of property
                 items.

              C. Investigate reductions in future lease
                 commitments to determine if property
                 held under capital leases has reverted back
                 to the lessor.

              D. Investigate reductions in insurance
                 coverage to determine if these relate to
                 property dispositions.


6) EVALUATION     OF               REALIZATION             OR
   RECOVERABILITY

    a.   Through discussions with appropriate personnel,
         determine whether idle, under-utilized, poorly
         performing or obsolete property exists. Determine
         whether, and on what basis, the client has made
         appropriate write-downs for any such items and
         whether any additional write-downs should be
         recorded to state them at their net realizable value.

         1.   Relate your findings to any such items noted
              during the physical inventory observation.

         2.   Examine support for write-downs taken and
              asset appraisals supporting remaining carrying
              values. Consider requesting the assistance of
              the Firm's Appraisal and Valuation Group.

         3.   Review the client's operating plan, budget or
              sales forecast to determine whether the
              expected production and sales volume or other
              indication of property usage is sufficient to
              realize property investments through future
              operations.

         4.   Review proceeds from any significant
              dispositions of property subsequent to the
              balance sheet date to determine whether the
              amount recovered equaled or exceeded the
              property's carrying value.

    b.   Consider whether repairs and maintenance
         expenditures are of such magnitude that an inquiry
         should be made as to the need for write downs of
         the related equipment or whether deferred
         maintenance has led to deterioration or shortened
         useful lives of property.

    c.   Determine which executive outside the client's
         financial organization is the best source of
         information about the locations of significant assets
         and additions and retirements of such assets. Ask
         this executive to review the detailed analyses of
         additions and dispositions and the CAF listing of
         the entity's locations, and to comment on their
         completeness.

7) TESTS OF CONSTRUCTION IN PROGRESS

    a.   Have the client prepare an analysis of activity in
         the construction-in-progress accounts, by project or
         appropriation, for the current period. Include the
         balances at the beginning and end of the period,
         additions, transfers and other dispositions.

         1.   Cross-reference the total activity to the
              summary analysis for the period.

         2.   Review the description of additions overall,
              noting whether they represent capitalizable
              costs.

         3.   Review appropriate approval documentation to
              ensure that additions are not made to
              unauthorized projects or to projects for which
              the approval limit has been exceeded.

         4.   Select a sample of projects or appropriations
              for testing and have the client prepare a
              schedule detailing the charges for those
              selected. Scope:()

              A. Trace the charges to the construction-in-
                 progress subsidiary ledger or similar
                 record that accumulates charges and
                 credits to individual projects or
                 appropriations.
     B. Inspect critical forms and documents ()
        supporting a sample of charges to the
        project. Scope:()

     C. Review the total charges for the project to
        date for reasonableness by reference to
        contracts with contractors, published
        statistics on costs of construction, the
        client's prior experience with similar
        additions, insurance or appraisal reports,
        architect's certificates or other appropriate
        sources.

     D. Review the propriety of the methods used
        to capitalize interest costs during the
        construction period and determines
        whether they are consistent with the
        methods used in the prior period. Evaluate
        the propriety of the time period for which
        interest was capitalized and the interest
        rate used; recompute the amount
        capitalized. Ensure that capitalization does
        not result in asset carrying values in
        excess of the recoverable value of the
        property.

     E. Review the propriety of the methods used
        to capitalize overhead during the
        construction period and determine
        whether they are consistent with the
        methods used in the prior period. Evaluate
        the propriety of amounts capitalized.
        Ensure that only those costs directly
        attributable to the construction work are
        included.

5.   For projects or appropriations completed
     during the year, determine whether there was a
     proper cutoff of the capitalization of interest
     and overhead and whether all related costs
     were transferred to the property accounts (note
     propriety of classification) and considered for
     depreciation on a timely basis.

6.   For significant projects or appropriations
     suspended, canceled or delayed during the
     period, review the related circumstances and
     evaluate the effect on realizability or
     recoverability of costs incurred.

7.   Physically observe significant projects or
     appropriations in process at the end of the
     period, noting that the physical characteristics
     appear to be consistent with the description in
     the authorizing documentation and that the
     estimated stage of completion appears
     reasonable.

     A. Review cash flow projections or budgets
        and, through discussions with appropriate
                       client personnel, determine whether the
                       client has identified adequate resources to
                       complete the project or appropriation.

                   B. Consider whether the costs are realizable
                      or recoverable.

              8.   For significant projects, confirm with outside
                   contractor amounts due or progress payments
                   made and other pertinent terms relative to the
                   construction contract.

9)   ANSWER INTERNAL CONTROL QUESTIONNAIRES (ICQ E-1)

10) SUPERVISION, REVIEW AND CONCLUSIONS

     a)   Conclude responsive to the audit objectives.

     b)   Prepare points regarding internal controls and other
          business matters.

     c)   Perform senior review and supervision.

     d)   Clear senior review points.

     e)   Clear manager review points.




     PERFORMED BY:                                                   REVIEWED BY:



          Audit Assistant                                            Audit Supervisor

				
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