As some assets, especially technology-related assets, become less valuable more quickly, clients may simply choose to discard the assets when replaced. However, because there is no consideration received, oftentimes clients will forget to record the entry removing the replaced asset from the books. As a result, as the new asset is recorded, the total assets are overstated, and, going forward, depreciation expense is also overstated as the disposed asset continues to be depreciated.
Very Best, CPA, is conducting a second-year audit on its client, Advanced Manufacturing, Inc. Consistent with the policy disclosed in the prior-year financial statements, technology and computer equipment is depreciated over five years. During its first-year audit, Very Best tested beginning balances and gained comfort on the property, plant, and equipment balances. While auditing this year, the assistant controller offered to put a printer and scanner in the audit conference room since "they had so many extras lying around." In addition, he noted that most of the accounting personnel were printing to a new central station and everyone had a scanner on their desk. When auditing current year acquisitions, this seemed consistent with activity, as there were many technology purchases in the current year.
What should have first alerted Very Best that its audit approach possibly needed to be modified?
If Very Best's audit approach was modified, what is a potential audit procedure that can be added?
What additional observations could have alerted Very Best that its audit procedures needed to be modified?