What are the key financial statement assertions for intangible non current assets?

Below are the a few substantive procedures to consider when auditing NCA’s (Non current assets).

First, lets deal with tangible NCA’s. For each audit assertion, a number of substantive procedures can be performed as listed below

1. COMPLETENESS
   • Obtain/prepare summary of NCA showing
     • gross book value
     • accumulated depreciation
     • net book value
   • Reconcile summary with opening position
   • Reconcile NCA GL (general ledger) with register, obtain explanation about differences
   • if no register, obtain schedule with
     • original cost
     • depreciated value
   • reconcile schedule with GL

1. RIGHTS AND OBLIGATIONS
   • verify
     • title deed
     • land registration certificate
     • leases
   • obtain certificate from bank/solicitor
     • stating reason for holding title deed
     • stating deed is free from mortgage/lien
   • Review vehicle registration documents, to ensure all vehicles in clients name
   • ensure all vehicles are used for business purpose
   • obtain documents, stating title to other assets
   • review lease documentation, ensure fulfillment of covenants there in
   • review, for verifying capital commitment,
     • invoices received after year end
     • orders made after year end
     • minutes of meetings after year end
   • investigate for any charges against assets

1. ADDITIONS
   • inspect documents eg
     • architects certificate
     • solicitors completion certificate
     • suppliers invoices
   • Examine relevant expenses accounts to ensure
     • proper capital/revenue distinction
     • consistency of capitalization policies
   • review NCA ledger to ensure proper allocation
   • In case of grants,
     • ensure proper claims made
     • review claims documentation
     • review bank statements
   • Reconcile NCA GL and register

1. VALUATION
   • Verify valuation certificate
   • Consider reasonableness of valuation by reviewing
     • experience of valuer
     • scope of work
     • methods & assumptions used
     • methods in line with accounting policies
   • Re – perform revaluation surplus calculation
   • Ensure valuations of revalued assets are updated regularly by
     • inquiring with fin director
     • inspecting previous FS (Financial Statements)
   • inspect draft accounts to ensure
     • for revaluation losses
       • where assets previously revalued up – revaluation loss debited to equity (revaluation gain)
       • where assets previously revalued down – revaluation loss are debited in PL
     • for revaluation gain
       • credited in equity
     • review insurance policies for
       • adequacy of insurance values
       • policy expiry date

1. EXISTENCE
   • Physically inspect assets mentioned in register
   • Confirm items
     • exist
     • are in use
     • are in good condition
     • have correct serial number
   • review records of income yielding assets
   • Reconcile opening closing vehicles by no. & amount

1. ADDITIONS
   • inspect documents eg
     • architects certificate
     • solicitors completion certificate
     • suppliers invoices
   • Examine relevant expenses accounts to ensure
     • proper capital/revenue distinction
     • consistency of capitalization policies
   • review NCA ledger to ensure proper allocation
   • In case of grants,
     • ensure proper claims made
     • review claims documentation
     • review bank statements
   • Reconcile NCA GL and register

1. DEPRECIATION
   • Review depreciation rates in relation to
     • asset useful life
     • disposal value
     • replacement policy
     • prior yrs experience regards profit / loss on disposal
     • consistency with previous accounting policies
     • possible obsolesce
   • Verify with register, depreciation charged on all assets with limited useful life
   • For revalued assets, depreciation charged on revalued amount
   • Re perform depreciation calculation
   • compare depreciation ratios with
     • previous years ratios
     • depreciation policy
   • verify depreciation rate and policy disclosed in FS

1. DISPOSALS
   • verify disposal by checking
     • supporting documents
     • transfer of title
     • sales price
     • date of completion of payment
   • Re calculate profit /loss on disposal
   • consider reasonableness of sales price
   • if asset used as security ensure released from security
2. SELF CONSTRUCTED
   • Verify material labor overhead costs with invoices, wage records etc
   • Ensure exp analyzed correctly & properly capitalized
   • ensure exp capitalized only if it
     • Enhances economic benefit of asset
     • Replaces / restores component of asset, previously treated separately
     • relates to major inspection or overhaul
   • Review costs to ensure no profitability included
   • Ensure finance costs
     • consistently capitalized
     • capitalized finance costs do not exceed total finance costs

INTANGIBLE ASSETS

In case of intangibles,the key assertions are

Existence – are they genuine? and

Valuation

A few procedures for some of the common intangibles are listed  below

1. GOODWILL
   • Inspect and agree consideration to sales agreement
   • Consider reasonableness of valuation
   • Re perform goodwill calculation
   • Review impairment and discuss with management
2. RESEARCH AND DEVELOPMENT
   • Confirm capitalization as per IAS 38
   • Inspect details of projects and discuss with technical managers
   • Recalculate amortization
   • Inspect invoices
3. OTHER INTANGIBLES
   • Inspect purchase documentation
   • Inspect specialist valuation
   • Recalculate amortization

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