How to audit revalued Property, Plant and Equipment?

 The item “Property, Plant and Equipment” is often material in the company’s statement of financial position. Revaluation relates to assertions about account balances, and related disclosures, at the period end such as accuracy, valuation and allocation. Why do auditors use assertions?

When auditing revalued PP&E auditors may perform the following audit procedures:

1. Considering reasonableness of valuation, reviewing:

· The competence, capabilities and objectivity of the expert.

· Scope of work.

· Methods, assumptions and data used. What is the management`s expert and how does the auditor use the management`s expert work?

2. Checking the valuations are regularly updated.

3. Verifying amounts in the financial statements with the valuer’s report.

4. Confirming the entire class of property, plant and equipment to which that asset belongs is revalued.

5. Reperforming calculation of revaluation surplus.

6. Checking the accounting for the rise or fall in value on revaluation.

7. Ensuring the charge for depreciation is based on the revalued amount by recalculating it for a sample of revalued assets.

8. Inspecting that all revaluation gains should be credited to equity (if a revaluation decrease of the same asset previously was not recognized in profit or loss) and revaluation losses should be debited in the statement of profit or loss unless there is a credit balance in respect of that asset in equity, in which case it should be debited to equity to cancel the credit.

9. Reviewing the notes to the financial statements to be sure that the following matters are disclosed:

· Effective date of the revaluation.

· Whether an independent valuer was involved.

· For each revalued class of property, plant and equipment, the carrying amount that would have been recognized had the assets been carried under the cost model; and

· The revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders.