Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You are an audit senior and have been assigned to the FH audit for the first time for the financial year ending December 31, 2012. During September 2012 you are completing the audit planning for PPE, which is one of FH's most material accounts. You are also aware that FH has made a large investment in a new manufacturing process to place itself in a more competitive position. Your analytical procedures indicate an increase in acquisitions of PPE.
Source: Adapted from the Institute of Chartered Accountants Australia's CA Program's Audit and Assurance Exam, May 2008.
Required
(a) What is the key assertion at risk for the PPE additions? Why is it at risk? Explain.
(b) Identify the relevant substantive tests of details that would be appropriate to address the assertion at risk identified in (a) above.
(c) How would your answers to the previous questions change if the PPE additions had been manufactured in-house by FH's engineers and toolmakers, rather than purchased?