Consider the audit risks related to fixed assets, specifically the risk that the

Question

Consider the audit risks related to fixed assets, specifically the risk that the asset balances are overstated or the related liabilities associated with the fixed assets are understated.

1. What might motivate management to overstate fixed assets? Why?

2. What might motivate management to understate the liabilities associated with fixed assets? Why?

3. How might an understanding of auditing procedures and audit results help a client improve controls over fixed assets?

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Explanation / Answer

1.

There are multiple methods to record and revalue fixed assets in Balance Sheet. However, manya times management try to color the transactions and record fixed assets at value which is above their actual value. There are multiple reasons for the same, some of which can be listed as :

2.

The main reason to understate liability is to improve financial ratios and enable company to avail for more credit from banks.

3.

Understanding of audit procedures can help client in following possible ways:

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