Determining useful life,salvage value and required provisions for future site restoration costs,all render valuation a high inherent risk assertion for the audit of PPE.What are the main reasons?
A)Annual depreciation expense is always a highly material amount.
B)There is a lack of independent evidence to support the assertion.
C)The high degree of subjectivity and potential for management bias.
D)Auditor reliance on an external expert is usually required.

Question

Quizplus · Accepted Answer

The determination of useful life, salvage value, and provisions for future site restoration costs is subjective and requires management's judgment. This makes it difficult for auditors to assess the reasonableness of the amounts reported and increases the risk of management bias. The lack of independent evidence to support the assertion and the requirement for auditor reliance on an external expert also contribute to the high inherent risk assertion. The annual depreciation expense may or may not be material depending on the size and composition of the PPE.

Determining Useful Life,salvage Value and Required Provisions for Future Site