Capital allowances vs. depreciation, Auditing

Assignment Help:

Capital allowances vs. Depreciation

Whether the client can prove such they will keep the existing levels of investment in original terms, then there may be justification to accept a reduction of this type of category of deferred taxation although if investments begin to decline after that deferred taxation could be crystallized.

The maintenance of existing capital expenditure levels is dependent on the profitability and sales of the company; hence the auditor is used effectively to perform an audit of the profit forecast for at least three years ahead. This would look to be against usually accepted accounting principles that advice against auditing of profit forecasts since in a profit forecast many factors are outside the control of the directors. Inventory levels and Capital expenditure are to a certain extent during the control of the directors. This may look to be a weak argument since profitability affects capital expenditure as well as there is little likelihood of profit whether the directors do not invest prudently, however it may well be during their control to do so. Therefore we only utilized the auditor to assess where profitability is probable to fall or not rise enough to warrant or support plant capital expenditure. So we do not expect him to assess precisely what such profitability is going to be. Evidence is based largely on longer term forecasts and the company's budgets. The process the auditor adopts are as follow:

a) Assess the trend of past capital expenditure to see where it is rising or falling or where there is no consistent pattern.

b) Assess the company's past profit performance to see where it is falling or rising and compare this performance along with the company's previous budgets and calculates to determine its ability in forecasting as good forecasting in the past gives more confidence for the present.

c) Assess the company's capital, profit and cash forecasts for reliability. This includes determining where they have been made on the basis of reasonable data or where they are mere estimate work.

d) Examine the directors minutes for evidence of policy changes that might affect future capital expenditure.

e) Take into consideration the economic situation mainly as it affects the client's own industry and the company's exposure to labour disruption to economic or legislative changes or components or material shortages.


Related Discussions:- Capital allowances vs. depreciation

Advantages and disadvantages of joint audits, Advantages and Disadvantages ...

Advantages and Disadvantages of Joint Audits The general disadvantages and advantages of joint audits as: Advantages 1. All fees and work are welcome to audit firms. 2. A

How is a hospitality firm valued, Firm valuation refers to the total value ...

Firm valuation refers to the total value of a firm in the capital market. It is the stock price of a firm times its outstanding shares. Total value of a firm is also called market

Factors affecting and controlling occupational health, Factors Affecting an...

Factors Affecting and Controlling Occupational Health (i) Walking-Working Surface Workers must work or move on different surfaces while working. Such - surfaces are cha

Debtors - audit process, Debtors - Audit Process Considering that what...

Debtors - Audit Process Considering that what we have gone by on the other assets the audit work to check the figure of trade debtors should be follows as: 1) Get a schedul

Profesional ethic, Ask quesThe following situations involve a possible viol...

Ask quesThe following situations involve a possible violation of the MIA ByLaws (on professional ethics, conduct and practice). For each situation, (1) decide whether or not the Co

Valuation - detailed audit of stock, Valuation - Detailed Audit of Stock ...

Valuation - Detailed Audit of Stock IAS 2 prescribes such stock be priced at the lower of price and net realizable price, It is up to the auditor to ensure that net realizable

Auditing different from studying other accounting topics, 1. Why is studyin...

1. Why is studying Auditing different from studying other accounting topics? 2. How might understanding auditing concepts prove useful for consultants, business managers, and other

What type of sampling plan should the auditors use for test?, In performing...

In performing a test of controls for sales order approvals, the CPAs stipulate a tolerable deviation rate of 8 percent with a risk of assessing control risk too low of 5 percent. T

Cost and authorization - detailed audit of stock, Cost and Authorization - ...

Cost and Authorization - Detailed audit of stock Cost A favor of the auditor this is restricted generally to determining the technique adopted through the organization

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd