The audit senior has asked you to perform analytical procedures to obtain substantive evidence on the reasonableness
Question:
The audit senior has asked you to perform analytical procedures to obtain substantive evidence on the reasonableness of recorded depreciation expense of the delivery equipment of a client. Changes in the account occurred pretty much evenly during the year. The estimated useful life is six years. Estimated salvage value is 10% of original cost. Straight-line depreciation is used. Additional information includes:
Delivery Equipment (per General Ledger)
Beginning Balance ………………………….. $ 380,500
Additions ……………………………………… $154,000
Disposals ……………………………………. $ (95,600)
Ending Balance ………………………………. $ 438,900
Normally the auditor would avoid obtaining the client’s recorded current year depreciation expense because it could bias the auditor’s expectations for this analytic. To facilitate this question assume that the client’s books show depreciation expense of $60,500 for the current year for delivery equipment.
Listed below are steps the auditor could follow. Enter your calculation in the blank space provided:
a. Compute the average balance:
b. Adjust the average balance for estimated salvage value:
c. Compute the amount you expect for the annual depreciation expense:
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston